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The Home Depot Inc HD

Morningstar Rating
$383.60 −2.29 (0.59%)
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Company Report

Home Depot: Addition of SRS Distribution to Inflate Pro Business but Unlikely to Move Our Valuation

Home Depot announced a deal to acquire SRS Distribution, a residential pro trade distributor specializing in roofing, landscape, and pool verticals. Marking the largest deal in the retailer’s history, Home Depot plans to finance the $18.25 billion transaction (set to close in fiscal 2024) with a combination of cash and debt. The deal values SRS at 16.1 times 2023 adjusted EBITDA, which strikes us as a touch rich relative to the roughly 15 times EBITDA it paid for HD Supply back in 2020. That said, if we were to incorporate the financial impact of the SRS Distribution deal into our existing Home Depot model (including the $18.25 billion price tag, increased debt that raises leverage to around 2.5 times, and higher interest expense), our $263 fair value estimate would change minimally. Considering the uncertainty around the timing or closure of this deal due to potential anti-trust issues, we plan to incorporate SRS into our model as we obtain more visibility. Home Depot’s shares continue to appear overpriced, and we’d suggest investors remain on the sidelines. More critically, we don’t anticipate this transaction will sway our long-term prospects for low-single-digit top-line growth and midteens operating margins, particularly as SRS would increase Home Depot’s sales base by 6.5%.

Price vs Fair Value

HD is trading within a range we consider fairly valued.
Price
$383.51
Fair Value
$664.00
Uncertainty
Medium
1-Star Price
$792.31
5-Star Price
$322.30
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Home Depot's continued investments in supply chain and merchandising should improve productivity and support its market leadership position in the home improvement market.

Bears

Weak consumer spending, higher interest rates, or an economic downturn could hinder sales for home improvement projects and affect Home Depot's growth.

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News

Trading Information

Previous Close Price
$385.89
Day Range
$379.72387.61
52-Week Range
$274.26396.87
Bid/Ask
$380.21 / $384.23
Market Cap
$380.15 Bil
Volume/Avg
4.1 Mil / 3.3 Mil

Key Statistics

Price/Earnings (Normalized)
24.62
Price/Sales
2.52
Dividend Yield (Trailing)
2.22%
Dividend Yield (Forward)
2.35%
Total Yield
4.23%

Company Profile

Home Depot is the world's largest home improvement specialty retailer, operating more than 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 has been expanded through the tie-up with HD Supply (2020). Moreover, the additions of the Company Store brought textile exposure to the lineup, while Redi Carpet added multifamily flooring.
Sector
Consumer Cyclical
Industry
Home Improvement Retail
Stock Style Box
Large Core
Total Number of Employees
471,600

Competitors

Valuation

Metric
HD
TGT
LOW
Price/Earnings (Normalized)
24.6219.8419.50
Price/Book Value
364.496.09
Price/Sales
2.520.761.72
Price/Cash Flow
20.1410.8214.35
Price/Earnings
HD
TGT
LOW

Financial Strength

Metric
HD
TGT
LOW
Quick Ratio
0.320.270.06
Current Ratio
1.350.911.23
Interest Coverage
11.1611.557.79
Quick Ratio
HD
TGT
LOW

Profitability

Metric
HD
TGT
LOW
Return on Assets (Normalized)
20.23%8.02%18.05%
Return on Equity (Normalized)
1,345.87%35.66%
Return on Invested Capital (Normalized)
32.69%15.13%35.63%
Return on Assets
HD
TGT
LOW
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Morningstar Rating for Stocks
Capital Allocation
Economic Moat
Market Cap
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FND
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ARHS
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HVT
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