Home Depot: Addition of GMS Will Likely Expand Pro Business

Key Morningstar Metrics for Home Depot

• Fair Value Estimate: $308.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

Home Depot’s HD subsidiary SRS will begin a cash tender offer to purchase all shares of GMS GMS common stock for $110 per share, indicating a total enterprise value of approximately $5.5 billion. The transaction is predicted to be accretive to EPS in the first year of its tie-up, even without synergies.

Why it matters: Home Depot has been expanding its professional business presence in recent years, starting with the acquisition of Interline Brands in 2015, followed by HD Supply in 2020, and then SRS Distribution in 2024. With the addition of GMS, we estimate these acquisitions will represent around 15% of the sales mix in 2026.

• GMS has around 320 distribution centers that sell wallboard, ceilings, steel framing, and other construction items. It also manages around 100 tool sales, rental, and service locations for residential and commercial customers. Thus, GMS will bolster Home Depot’s pro distribution.

The bottom line: If the GMS deal closes by the end of 2025, we expect it to lift our $308 per share fair value estimate for wide-moat Home Depot by around 3%, assuming some of the purchase is financed with cash. Home Depot had $1.4 billion in cash and $7.0 billion in credit access on May 4.

• At around 13 times EV/EBITDA, the deal is a bit less rich than SRS and HD Supply (estimated mid-teens). That said, some discount was warranted, given that GMS has delivered single-digit operating margins over the past three years, which is below Home Depot’s average.
• We expect Home Depot will utilize past execution lessons to help mitigate integration risk, and, as such, we don’t plan to alter our Exemplary Capital Allocation Rating. Even with sales growth returning to 4% and average operating margins of 14% post tie-up, ROICs should still surpass 20%.

Coming up: Home Depot still intends to return to a 2 times leverage ratio by the end of fiscal 2026, which is in line with our pre-announcement estimate.