Yes, you are correct. The given sentence, "She thought she saw a stranger, but he turned out to be her neighbor who was back from vacation early," is a compound sentence. Compound sentences consist of two independent clauses joined together by a coordinating conjunction or a semicolon. In this case, the coordinating conjunction "but" is used to join the two independent clauses "She thought she saw a stranger" and "he turned out to be her neighbor who was back from vacation early."
