Business Description

Home Depot is the world’s largest home improvement specialty retailer, operating nearly 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico. Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals. The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations business, which is expected to expand with the pending acquisition of HD Supply. The tie-up with Company Store also brought textile exposure to Home Depot’s lineup.

Recommendation (Jan 2021)

An outstanding business, undervalued at $271.50 per share.

$271.50 per share implies that revenue and NOPAT will grow at 2.5% CAGR for the next 10 years, at a 14% Operating Margin. This indicates that HD is undervalued.

If we assume that EPS will grow between 12-18% CAGR for 10 years and that HD will trade at a PE multiple of 20x in 2030, then the implied Investor Return would be between 12-17%.

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