Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Recommendation
Price
12-Mo. Target Price
USD 248.50 (as of Jul 02, 2020 4:00 PM ET) USD 265.00
STRONG BUY
Report Currency
USD
Investment Style
Large-Cap Growth
Equity Analyst Kenneth Leon
GICS Sector Consumer Discretionary
Sub-Industry Home Improvement Retail
Summary As of April 30, 2020, Home Depot operates a chain of 2,293 retail warehouse-type stores,
selling home improvement products.
Key Stock Statistics (Source: CFRA, S&P Global Market Intelligence (SPGMI), Company Reports)
52-Wk Range
USD 259.29 - 140.63
Trailing 12-Month EPS
USD 10.07
Trailing 12-Month P/E
24.64
$10K Invested 5 Yrs Ago
$24,020
Oper. EPS 2021E
USD 9.60
Oper. EPS 2022E
USD 10.85
P/E on Oper. EPS 2021E
25.85
Common Shares Outstg.(M) 1,075.5
Market Capitalization(B)
USD 267.3
Yield (%)
2.41
Dividend Rate/Share
USD 6.00
Institutional Ownership (%)
72
Price Performance
30-Week Mov. Avg.
Beta
3-Yr Proj. EPS CAGR(%)
SPGMI's Quality Ranking
1.06
7
A+
Analyst's Risk Assessment
10-Week Mov. Avg.
GAAP Earnings vs. Previous Year
12-Mo. Target Price
Up
Down
No Change
Volume Above Avg.
STARS
Below Avg.
LOW
MEDIUM
HIGH
Our risk assessment for Home Depot reflects our view of
ample opportunities for growth in the professional market
domestically and the retail business overseas. This is
partially offset by the cyclical nature of the home
improvement retail sub-industry, which relies on
economic growth.
Revenue/Earnings Data
Source: CFRA, S&P Global Market Intelligence
Past performance is not an indication of future performance and should not be relied upon as such.
Analysis prepared by Equity Analyst Kenneth Leon on May 19, 2020 03:58 PM, when the stock traded at USD 240.55.
Highlights
We see 2% sales growth in FY 21 (Jan.), down
from a 5.2% rise in FY 20, as we think higher
sales growth will be impacted by the
coronavirus. We see sales rebounding in FY 22,
given HD’s strong franchise in home
improvement. We think households are shifting
their spending to the home with social impact
of Covid-19. Home improvement sales may
benefit from low rates on mortgages and home
equity loans, stable home prices, and a
rebound in home sales.
HD had stellar results with limited store hours,
based on Apr-Q sales (+7.1%, comp sales
+6.4%), average ticket (+11.0%), partly offset
by lower customer transactions (-3.9%). April
monthly sales were up 6.4% YoY versus
February (+9.7%) and March (+7.5%). Digital
sales rose 80%, and more than 60% of the
time, customers did store pick-ups of their
orders. Gross margins at 34.0% were flat year
over year.
Despite customer transactions (-3.9%),
metrics were better for average tickets
(+4.1%), and sales per sq. ft. (+2.8%). The PRO
segment that covers contractors realized lower
sales in Apr-Q, because most states limited
business to essential services. We forecast
PRO sales (historically 20% to 25% of total
sales) will grow over the next 12 months.
Investment Rationale/Risk
Our Strong Buy is based on HD's market
leadership as a home improvement retailer
that households depend on. We see HD as
formidable retailer that cannot only endure the
economic downturn in the near term, but gain
household wallet share. Over the next twelve
months, we think the pandemic is likely to shift
consumer spending from restaurants, travel
and live entertainment to home improvement
projects, whether they be the backyard, or
remodeling a kitchen or bathroom, or finishing
a basement.
Risks to our recommendation and target
include a deep and prolonged recession, higher
unemployment, and lower consumer spending
on home improvement items.
On May 19, we raised our target by $10 to
$265, applying a forward P/E of 27.6x our FY 21
(Jan.) earnings estimate, above the 5-year
historic average at 20.4x given weaker earnings
from Covid-19. We lower our FY 21 EPS
estimate by $0.90 to $9.60 and FY 22's by
$0.60 to $10.85 a share. HD reported Apr-Q
EPS of $2.08, including $0.60 of unusual wage
expenses taking care of store employees, $0.27
below our estimate. In Apr-Q, capex was down
5% to $2.58 billion, cash dividends paid were
$5.98 billion, and share buybacks were $6.39
billion.
Revenue (Million USD)
1Q
2Q
2021
28,260
-2020
26,381 30,839
2019
24,947 30,463
2018
23,887 28,108
2017
22,762 26,472
2016
20,891 24,829
3Q
-27,223
26,302
25,026
23,154
21,819
4Q
Year
--25,782 110,225
26,491 108,203
23,883 100,904
22,207 94,595
20,980 88,519
Earnings Per Share (USD)
1Q
2Q
E 2.55
E 3.30
2022
E 2.90
2021
2.08
2020
2.27
3.17
2019
2.08
3.05
2018
1.67
2.25
2017
1.44
1.97
3Q
E 2.70
E 2.40
2.53
2.51
1.84
1.60
4Q
Year
E 2.30 E 10.85
E 2.12
E 9.60
2.29
10.25
2.09
9.73
1.52
7.29
1.44
6.45
Fiscal year ended Jan 31. Next earnings report expected: Mid Aug.
EPS Estimates based on CFRA's Operating Earnings; historical
GAAP earnings are as reported in Company reports.
Dividend Data
Amount
(USD)
1.50
1.50
1.36
1.36
Date
Decl.
May 19
Feb 25
Nov 21
Aug 22
Ex-Div.
Date
Jun 03
Mar 11
Dec 04
Sep 04
Stk. of
Record
Jun 04
Mar 12
Dec 05
Sep 05
Payment
Date
Jun 18 '20
Mar 26 '20
Dec 19 '19
Sep 19 '19
Dividends have been paid since 1987. Source: Company reports.
Past performance is not an indication of future performance
and should not be relied upon as such.
Forecasts are not reliable indicator of future performance.
Redistribution or reproduction is prohibited without written permission. Copyright © 2020 CFRA. This document is not intended to provide personal investment advice and it does not take into account the specific investment
objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek independent financial advice regarding the suitability and/or appropriateness of making an
investment or implementing the investment strategies discussed in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such
investments, if any, may fluctuate and that the value of such investments may rise or fall. Accordingly, investors may receive back less than they originally invested. Investors should seek advice concerning any impact this
investment may have on their personal tax position from their own tax advisor. Please note the publication date of this document. It may contain specific information that is no longer current and should not be used to make an
investment decision. Unless otherwise indicated, there is no intention to update this document.
1
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Business Summary May 19, 2020
Corporate Information
CORPORATE OVERVIEW. Home Depot is the world's largest home improvement retailer, with $110.2 billion
in revenues in FY 2020 (Jan.). In January 2020, HD operated 2,291 Home Depot stores (including stores in
Canada and Mexico). Stores average approximately 104,000 square feet, plus 24,000 square feet of
garden center and storage space, and stock 30,000 to 40,000 items, including brand name and proprietary
items.
Investor Contact
I. Janci (770-433-8211)
Home Depot stores serve three primary customer groups: Do-It-Yourself (DIY) customers, typically
homeowners who complete their own projects and installations; Do-It-For-Me (DIFM) customers, usually
homeowners who purchase materials and hire third parties to complete the project and/or installation;
and Professional customers, consisting of professional remodelers, general contractors, repair people and
tradespeople. By product category, its largest products by revenue are Indoor Garden, followed by
appliances, paint and lumber.
Telephone
770-433-8211
CORPORATE STRATEGY. HD is in a period of transition, we think, after years of expanding rapidly. We expect
it to confront a rapidly-saturating domestic market by accelerating its expansion efforts abroad,
particularly in Mexico. Domestically, HD is increasing its focus on service and customer retention as a
means to gain market share.
Office
2455 Paces Ferry Road, Atlanta, Georgia 30339
Website
www.homedepot.com
Officers
Chairman, CEO &
President
C. A. Menear
HOME EQUITY VALUES: We see this metric remaining high from low housing inventory and rising average
selling prices. Given higher mortgage rates and scarcity of attractively priced homes, households are likely
to invest in their homes with remodeling and renovation, by our analysis. The S&P CoreLogic Case-Shiller
Indices continues to show price gains albeit at a slower pace. Even with current home pricing levels near or
above the 2006 peak levels, we do not see a housing crash given low inventory, fewer speculative new
homes in homebuilding communities, low household debt and a conservative lending environment from
the U.S. banking industry.
VP, Chief Accounting
Officer & Corporate
Controller
S. L. Gibbs
U.S. households have the debt capacity to initiate home equity loans. Since the financial crisis, U.S.
households are more conservative with lower consumer and mortgage debt. In past years, households took
advantage of lower rates to refinance their mortgages. Average household debt-to-income ratio confirms
this trend with the peak ratio in 2006 at 13.23% compared to a low level at 9.88% in Q4 2018, as tracked
by The Federal Reserve Board.The latest reported data showed was 9.62% in Q3 2019.
Board Members
HOME IMPROVEMENT FORECASTS: Record high home remodeling spending is expected ahead. The JCHS
Leading Indicator of Remodeling Activity (LIRA) release on January 16, 2020 reported remodeling activity
rose to $328.0 billion, up 4.8% in Q4 2019, and forecasts residential remodeling will reach a decade high at
$333.0 billion, up 1.5%, at the end of 2020 The LIRA is released by the Remodeling Futures Program at the
Joint Center for Housing Studies of Harvard University in the third week after each quarter’s closing. The
next LIRA release date is April 16, 2020.
RISE OF SMART HOME SYSTEMS: Home improvement retailers like Home Depot and Lowe’s will likely
benefit from consumers buying smart systems or embedded smart home features in a thermostat,
refrigerator or alarm system. Home monitoring/security devices include connected door locks, cameras,
moisture sensors near furnaces or humidifiers, door bells and other.
FINANCIAL TRENDS. As of January 31, 2020, HD's total debt to total capital ratio was 109.1%, above
year-end FY 19 levels at 106.9%, while its total debt to EBITDA ratio was 1.9x and 1.6x for the same
respective periods. Average days sales outstanding (DSO) rose to 6.2 days in Q4 FY 20 with pick-up in the
spring to summer period compared to 5.7 days at year-end FY 19. HD ended Q4 FY 20 with $2.20 billion in
cash and cash equivalents. Account receivable increased to $2.1 billion in FY 20, up from $1.9 billion at
year end FY 19. The company is guiding FY 21 capital spending of $2.8 billion, up from $2.7 billion in FY 19,
and cash flow from operations of $13.5 billion, up from 13.0 billion in FY 19. Share repurchases are
planned to $5.0 billion in FY 21 compared to $7.0 billion in FY 20.
Executive VP, General
Counsel & Corporate
Secretary
T. W. Roseborough
Senior Vice President of
Technology
P. Antony
Executive VP & CFO
R. V. McPhail
A. Bousbib
A. P. Carey
C. A. Menear
G. D. Brenneman
G. J. Arpey
H. B. Foulkes
J. F. Brown
J. H. Boyd
L. R. Gooden
M. Kadre
S. C. Linnartz
W. M. Hewett
Domicile
Delaware
Auditor
KPMG LLP - Klynveld Peat
Marwick Goerdeler
Founded
1978
Employees
415,700
Stockholders
121,000
In our view, HD has ample liquidity to operate the business and meet the cash dividend. As of May 2020,
the company has undrawn availability on a $6.5 billion credit revolver facility, up $3.0 billion in April; $6.0
billion undrawn on a commercial paper program; and issued $5 billion of additional long-term debt. As of
April 30, 2020, cash conversion cycle improved to 36.6 days in Apr-Q versus Feb-Q at 38.9x, as inventory
turns rose to 5.1x days from 4.5x days for same periods.
We think management’s response to Covid-19 will enhance employee morale and boost commitment for
customer service. In Apr-Q, an $850 million pretax unusual expense was charged and fully accrued for the
entire FY 21. The company provided expanded paid time for all its hourly associates with additional hours
that can be used at their discretion or be paid out at year end if not used. The unusual expenses also
includes additional paid time off for associates who are 65 years old and older deemed to be a high risk to
Covid-19, extended dependent care benefits, and waived related co-pays. Weekly bonuses were given as
well for hourly associates in HD’s stores and distribution centers, and doubled overtime pay.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
2
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Quantitative Evaluations
Fair Value Rank
Fair Value
Calculation
2
USD
233.54
Volatility
Technical
Evaluation
Expanded Ratio Analysis
1
2
3
4
5
LOWEST
HIGHEST
Based on CFRA's proprietary quantitative model,
stocks are ranked from most overvalued (1) to most
undervalued (5).
Analysis of the stock's current worth, based on
CFRA's proprietary quantitative model suggests that
HD is slightly overvalued by USD 14.96 or 6.0%.
LOW
BULLISH
Insider Activity
AVERAGE
NEUTRAL
2019
1.95
11.75
14.48
18.95
1143
2018
2.43
14.65
17.91
28.43
1184
2017
1.80
11.08
13.67
21.45
1234
1 Year
1.87
1.09
3 Years
5.23
12.21
5 Years
5.79
12.12
NM
80.53
NM
NM
NA
NA
NM
NA
NA
Figures based on fiscal year-end price
HIGH
Key Growth Rates and Averages
Since April, 2020, the technical indicators for HD
have been BULLISH.
UNFAVORABLE
2020
2.27
13.79
17.00
22.25
1097
Price/Sales
Price/EBITDA
Price/Pretax Income
P/E Ratio
Avg. Diluted Shares Outsg.(M)
FAVORABLE
Past Growth Rate (%)
Sales
Net Income
Ratio Analysis (Annual Avg.)
Net Margin (%)
% LT Debt to Capitalization
Return on Equity (%)
Company Financials Fiscal year ending Jan. 31
Per Share Data (USD)
Tangible Book Value
Free Cash Flow
Earnings
Earnings (Normalized)
Dividends
Payout Ratio (%)
Prices: High
Prices: Low
P/E Ratio: High
P/E Ratio: Low
Income Statement Analysis (Million USD)
Revenue
Operating Income
Depreciation + Amortization
Interest Expense
Pretax Income
Effective Tax Rate
Net Income
Net Income (Normalized)
Balance Sheet and Other Financial Data (Million USD)
Cash
Current Assets
Total Assets
Current Liabilities
Long Term Debt
Total Capital
Capital Expenditures
Cash from Operations
Current Ratio
% Long Term Debt of Capitalization
% Net Income of Revenue
% Return on Assets
% Return on Equity
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
-4.99
10.11
10.25
8.38
5.58
53
239.31
179.52
23.3
17.5
-3.74
9.32
9.73
8.09
4.45
42
215.43
158.09
22.1
16.2
-0.71
8.60
7.29
7.23
3.70
49
207.60
136.33
28.5
18.7
1.86
6.64
6.45
6.33
2.96
43
139.37
109.62
21.6
17.0
3.37
6.16
5.46
5.37
2.46
43
135.47
92.17
24.8
16.9
6.10
5.08
4.71
4.62
2.00
40
107.74
73.96
22.9
15.7
8.14
4.38
3.76
3.69
1.64
42
82.57
63.82
22.0
17.0
11.19
3.78
3.00
3.01
1.26
38
68.15
44.30
22.7
14.8
10.92
3.48
2.47
2.42
1.08
42
45.50
28.13
18.4
11.4
10.91
2.12
2.01
1.99
0.96
47
38.12
26.62
19.0
13.2
110,225
15,843
2,296
1,201
14,715
23.6
11,242
9,197
108,203
15,777
2,152
1,051
14,556
23.6
11,121
9,252
100,904
14,681
2,062
1,057
13,698
37.0
8,630
8,561
94,595
13,427
1,973
972
12,491
36.3
7,957
7,807
88,519
11,774
1,863
919
11,021
36.4
7,009
6,888
83,176
10,439
1,786
830
9,976
36.4
6,345
6,216
78,812
9,166
1,757
711
8,467
36.4
5,385
5,292
74,754
7,901
1,684
632
7,221
37.2
4,535
4,556
70,395
6,661
1,682
606
6,068
36.0
3,883
3,793
67,997
5,839
1,718
530
5,273
36.7
3,338
3,296
2,133
19,810
51,236
18,375
27,589
34,261
2,678
13,723
1.08
80.5
10.20
20.8
NM
1,778
18,529
44,003
16,716
25,815
27,324
2,442
13,038
1.11
94.5
10.28
22.3
NM
3,595
18,933
44,529
16,194
24,267
28,482
1,897
12,031
1.17
85.2
8.55
21.0
NM
2,538
17,724
42,966
14,133
22,349
27,934
1,621
9,783
1.25
80.0
8.41
19.8
NM
2,216
16,484
41,973
12,524
20,789
27,532
1,503
9,373
1.32
75.5
7.92
18.0
89.6
1,723
15,302
39,946
11,269
16,869
26,519
1,442
8,242
1.36
63.6
7.63
16.2
58.1
1,929
15,279
40,518
10,749
14,691
27,246
1,389
7,628
1.42
53.9
6.83
14.0
35.5
2,494
15,372
41,084
11,462
9,475
28,573
1,312
6,975
1.34
33.2
6.07
12.1
25.4
1,987
14,520
40,518
9,376
10,758
28,686
1,221
6,651
1.55
37.5
5.52
10.3
21.1
545
13,479
40,125
10,122
8,707
28,638
1,096
4,585
1.33
30.4
4.91
9.0
17.4
Source: S&P Global Market Intelligence. Data may be preliminary or restated; before results of discontinued operations/special items. Per share data adjusted for stock dividends; EPS diluted.
E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
3
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Sub-Industry Outlook
Industry Performance
We have a positive fundamental outlook for the
home improvement retail sub-industry. Home
improvement sales may benefit from low rates
on home equity loans and mortgages, stable home
prices, and a rebound in the housing market,
both for new and existing home sales. This
sub-industry is a seasonal business with the
spring and summer months as the peak period that
then shifts to the weaker winter period. Weather
can sometimes trip up performance in the peak
period.
While the coronavirus pandemic has wreaked havoc
on small business and homeowners, we forecast
home improvement retailers will benefit into
2021 from more of a stay-at-home lifestyle.
We think homeowners are going to pivot with
their discretionary spending to improve their
homes versus restaurants, live entertainment,
and family travel, especially abroad. This will
benefit pro contractors for home remodeling and
do-it-yourself consumers. Of course, an economic
downturn may lead to lower sales for Home Depot
and Lowes Companies, but we see a strong
rebound for this sub-industry.
There are over 126 million U.S. households
ripe for home improvement; approximately 95%
of U.S. households are not leaving their homes.
We think high home equity value, low mortgage
debt versus discretionary spending, and stable
household income may still lead to higher home
improvement demand. Job unemployment is a major
risk to home improvement spending. We forecast
the undersupplied and higher-priced U.S. housing
market conditions will continue. Our optimistic
scenario for this sub-industry assumes an
economic rebound from Covid-19.
Up until the pandemic, U.S. households had the
debt capacity to initiate home equity loans.
Since the financial crisis, U.S. households
are more conservative with lower consumer and
mortgage debt. In past years, households took
advantage of lower rates to refinance their
GICS Sector: Consumer Discretionary
Sub-Industry: Home Improvement Retail
mortgages. Average household debt to
disposable personal income ratio confirms
this trend with the peak ratio in 2006 at
13.23% compared to a low level at 9.73% in
Q4 2019, as tracked by The Federal Reserve
Board.
Based on S&P 1500 Indexes
Five-Year market price performance through Jul 04, 2020
The JCHS Leading Indicator of Remodeling
Activity (LIRA) released on April 20, 2020,
reported remodeling activity was $326 billion,
up 3.3% in Q1 2020, and forecasts residential
remodeling will reach a decade high at $333
billion, up 1.8% at year end 2020 and up 3.9%
in 2021. With market uncertainties from
Covid-19, the LIRA downside projection
scenario sees potential change of -0.4% at
end of 2020 and -1.2% in 2021.
We think a lot will depend on how U.S.
households feel about income, home equity,
and other sources of wealth. The LIRA is
released by the Remodeling Futures Program
at the Joint Center for Housing Studies of
Harvard University in the third week after each
quarters closing. The next LIRA release date is
July 16, 2020.
Many home improvement retailers are shifting
their capital spending to technology
investments and improving existing stores
versus new stores that could lead to higher
returns on capital, launching new market
delivery operations from stores. Several
retailers, like Home Depot and Lowes, are
beginning to understand how to integrate
e-commerce with in-store purchases and
delivery to job sites. Also, the leading home
improvement retailers are investing in their
supply chain.
NOTE: All Sector & Sub-Industry information is based on the
Global Industry Classification Standard (GICS).
Past performance is not an indication of future performance
and should not be relied upon as such.
Source: S&P Global Market Intelligence
Year to date as of May 29, the S&P Home
Improvement Retail Index increased 12.4%
versus a 5.8% decline in the S&P 500. In 2019,
this sub-industry rose 27.7% versus a 28.3%
increase for the S&P 1500.
/Kenneth Leon
Sub-Industry: Home Improvement Retail Peer Group*: Home Improvement Retail
Peer Group
Stock
Symbol
Exchange Currency
Recent
Stock
Price
30-Day
1-Year
Stk. Mkt.
Price
Price
Cap. (M) Chg. (%) Chg. (%)
P/E
Ratio
Fair
Value
Calc.
267,267
5,927
-1.7
10.6
Return
Yield on Equity
(%)
(%)
18.3
37.7
49
39
233.54
56.56
2.4
Nil
NM
22.3
LTD to
Cap (%)
The Home Depot, Inc.
Floor & Decor Holdings, Inc.
HD
FND
NYSE
NYSE
USD
USD
248.50
57.81
Grow Solutions Holdings, Inc.
GRSO
OTCPK
USD
0.0006
1
-45.8
-91.9
NM
NA
Nil
5.8
NA
LL
NYSE
USD
13.67
394
32.2
21.6
15
27.95
Nil
6.3
21.9
RHDG.F
OTCPK
USD
1.090
5
0.0
-63.1
NM
NA
45.9
-1.6
0.1
TTSH
OTCPK
USD
1.300
67
11.1
-68.1
NM
NA
Nil
-3.2
17.9
Lumber Liquidators Holdings, Inc.
Retail Holdings N.V.
Tile Shop Holdings, Inc.
80.5
7.8
*For Peer Groups with more than 10 companies or stocks, selection of issues is based on market capitalization.
NA-Not Available NM-Not Meaningful.
Note: Peers are selected based on Global Industry Classification Standards and market capitalization. The peer group list includes companies with similar characteristics, but may not include all the companies within the same
industry and/or that engage in the same line of business.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
4
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Analyst Research Notes and other Company News
May 19, 2020
03:52 pm ET... Correction: CFRA Keeps Strong Buy Opinion on Shares of Home
Depot, Inc. (245.35*****): We raise our target $10 to $265, 27.6x our FY21
(Jan.) earnings estimate, above the 5-year historic average at 20.4x given
weaker earnings from Covid-19. We lower our FY21 EPS estimate by $0.90 to $9.
60 and FY22’s by $0.60 to $10.85. HD reported Apr-Q EPS of $2.08,
including $0.60 of unusual wage expenses taking care of store employees, $0.
27 below our estimate. HD had stellar results with limited store hours, based
on Apr-Q sales (+7.1%, comp sales +6.4%), average ticket (+11.0%), partly
offset by lower customer transactions (-3.9%). Digital sales rose 80% and,
more than 60% of the time, customers picked up orders in stores. Gross margins
at 34.0% were flat year over year. Cash conversion cycle improved to 36.6 days
in Apr-Q versus Feb-Q at 38.9x, as inventory turns rose to 5.1x days from 4.5x
days. In Apr-Q, capex was down 5% to $2.58 billion, cash dividends paid were
$5.98 billion, and share buybacks were $6.39 billion. An earlier version of
this note misstated the upcoming fiscal years. /Kenneth Leon
March 11, 2020
11:22 am ET... CFRA Raises to Strong Buy from Hold Opinion on Shares of The
Home Depot, Inc. (210.46*****): We see an enhanced buying opportunity with
HD’s shares down from their February highs, and the U.S. household
remains strong and willing to invest in home improvement and remodeling
projects, in our opinion. Spring officially begins March 19, which kicks off
HD’s seasonal selling season for outdoor items in its stores. We think
the coronavirus is likely to shift consumer spending from travel and
entertainment to home improvement projects, whether they be the backyard, or
remodeling a kitchen or bathroom, or finishing a basement. U.S. household debt
levels are conservative compared to levels evident right after the financial
crisis over a decade ago. Rates are at all-time low since 1981 for the 30-year
fixed rate mortgage. Refinancings are expected to boom, and home equity loans
are more affordable than any time in the past few decades. So, we think
consumer confidence is our biggest risk. We keep our target at $255 and
our EPS estimates at $10.50 in FY 21 (Jan.) and $11.45 in FY 22. /Kenneth
Leon
November 19, 2019
10:33 am ET... CFRA Reiterates Sell Opinion on Shares of The Home Depot, Inc.
(238.85**): We raise our 12-month target by $8 to $210, applying a P/E of 19.3x
our FY 21 (Jan.) earnings estimate vs. a 20.2x three-year historic average. We keep
our FY 20 (Jan.) EPS at $10.10 and leave FY 21's at $10.85, with concerns about
trade tariffs and lower lumber prices and slower sales benefits from HD's online
platform upgrades. HD posts Q3 FY 20 EPS of $2.53, in line with consensus. We do
not see significant growth ahead, given HD will be entering the slower six months of
the year. Guidance for same-store sales growth was lowered to 3.5% from 4.0% by
the company. Total sales were up 3.5% in Q3 FY 20, while comparable store sales
were up 3.6%. Lumber price deflation negatively impacted sales by $175M. Key
metrics eased in customer transactions (+ 1.5%), average tickets (+1.9%), but
sales per sq. ft. (+ 3.5%) were better. HD repurchased 4.1% of common shares in
Q3 FY 20 that benefited EPS. Despite improving existing home sales, HD sees only
stable demand for home improvement products. /Kenneth Leon
August 20, 2019
09:59 am ET... CFRA Reiterates Sell Opinion on Shares of Home Depot, Inc.
(207.95**): We keep our 12-month target at $202, applying a P/E of 20.0x
compared to the three-year historic average P/E of 20.2x. We keep our FY 20
(Jan.) EPS at $10.10 and leave FY 21's at $10.85, with concerns about trade
tariffs and lower lumber prices in the 2H of FY 20. HD posts Q2 FY 20 EPS of
$3.17, a $0.09 consensus beat, but operating income was flat YoY. We do not see
significant growth ahead, given HD will be entering the slower nine months of
the fiscal year. Total sales were up only 1.2% in Q2 FY 20, while comparable
store sales were up 3.0%, both lower than Q1 YoY comps. Weather was less of a
factor in Q2 FY 20, but significantly lower lumber prices hurt total sales. Key
metrics showed weakness in customer transactions (flat YoY), average tickets (up
only 1.7%) and sales per sq. ft. (up 1.1%). HD has a $5B share repurchase plan
and outstanding shares declined 4.4% in Q2 FY 20. HD demand may ease as
consumer confidence levels declined 6.4% to 92.1 in August from 98.4 in July.
/Kenneth Leon
February 25, 2020
09:46 am ET... CFRA Reiterates Hold Opinion on Shares of The Home Depot, Inc.
(239.7***): We are raising our target by $25 to $255, applying a forward P/E
of 24.3x our FY 21 (Jan.) earnings estimates versus a 21.0x 3-year average as
we view the premium to HD’s strong domestic business that is resilient to
non-U.S. macro risks such as the coronavirus and China-U.S. trade tariffs. In
our view, the U.S. household may shift their discretionary spending to the home
from 2020 travel plans, especially outside the U.S. We think home improvement
sales will benefit from low rates on mortgages and home equity loans, rising
home prices, and a growing market in 2020 home sales. We lower our FY 21 EPS
estimate by $0.35 to $10.50, near the consensus, and introducing new FY 22 of
$11.45. HD post Q4 FY 20 EPS of $2.28, a $0.17 beat to consensus, and the
company announced a 10% dividend increase to $6.00 on an annual basis.
Same-store sales were up 5.2% in Q4 FY 20, and we see FY 21 sales growth of
3.5% to 4.0%. Pro segment (contractors) sales were above the historical average
in Q4 FY 20. /Kenneth Leon
December 03, 2019
02:22 pm ET... CFRA Raises Opinion on Home Depot, Inc. to Hold from Sell (213.
71***): We raise our 12-month target by $20 to $230, applying a P/E of 21.2x
our FY 21 (Jan.) earnings estimate vs. a 20.2x three-year historic average. We
keep our FY 20 (Jan.) EPS at $10.10 and leave FY 21's at $10.85, with risks
reflected in current share price, in our view, such as trade tariffs, lower
lumber prices and slower sales benefits from HD's online platform upgrades. We
do not see strong growth ahead, given HD will be entering the slower six months
of the year. Last month, guidance for same-store sales growth was lowered to 3.
5% from 4.0% by the company. Total sales were up 3.5% in Q3 FY 20, while
comparable store sales were up 3.6%. Lumber price deflation negatively impacted
sales by $175M. Key metrics eased in customer transactions (+ 1.5%), average
tickets (+1.9%), but sales per sq. ft. (+ 3.5%) were better. HD repurchased 4.
1% of common shares in Q3 FY 20 that benefited EPS. We think the next key
catalyst may be a strong spring selling season as reported in Q1 FY 21 results.
/Kenneth Leon
Note: Research notes reflect CFRA's published opinions and analysis on the stock at the time the note was published. The note reflects the views of the equity analyst as of the date and time
indicated in the note, and may not reflect CFRA's current view on the company.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
5
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Analysts' Recommendations
Monthly Average Trend
Wall Street Consensus Opinion
Buy
Buy/Hold
Hold
Weak Hold
Sell
B
BH
H
WH
S
HD Ticker
BUY/HOLD
Wall Street Consensus vs. Performance
For fiscal year 2021, analysts estimate that HD will earn
USD $10.05. For the 1st quarter of fiscal year 2021, HD
announced earnings per share of USD $2.08, representing
20.7% of the total revenue estimate. For fiscal year 2022,
analysts estimate that HD's earnings per share will grow
by 11% to USD $11.15.
No. of
Recommendations
13
8
11
1
0
1
34
Buy
Buy/Hold
Hold
Weak Hold
Sell
No Opinion
Total
% of Total
1 Mo.Prior
3 Mos.Prior
38
24
32
3
0
3
100
13
8
11
1
0
1
34
13
8
11
1
0
0
33
Wall Street Consensus Estimates
Estimates
Fiscal Years
2022
2021
2022 vs. 2021
Q2'22
Q2'21
Q2'22 vs. Q2'21
2020
2021
2022
2020 Actual (Normalized Diluted) $8.38
Avg Est.
11.15
10.05
11%
High Est
12.20
11.25
8%
Low Est.
10.06
9.59
5%
# of Est.
31
30
3%
Est. P/E
22.3
24.7
-10%
3.52
3.30
7%
3.75
4.15
-10%
3.09
2.92
6%
13
25
-48%
70.5
75.3
-6%
Forecasts are not reliable indicator of future performance.
Note: A company's earnings outlook plays a major part in any investment decision. S&P Global Market Intelligence organizes the earnings estimates of over 2,300 Wall Street analysts, and
provides their consensus of earnings over the next two years, as well as how those earnings estimates have changed over time. Note that the information provided in relation to consensus
estimates is not intended to predict actual results and should not be taken as a reliable indicator of future performance.
Note: For all tables, graphs and charts in this report that do not cite any reference or source, the source is S&P Global Market Intelligence.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
6
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Glossary
STARS
Since January 1, 1987, CFRA Equity and Fund Research Services, and its
predecessor S&P Capital IQ Equity Research has ranked a universe of U.S.
common stocks, ADRs (American Depositary Receipts), and ADSs (American
Depositary Shares) based on a given equity's potential for future performance.
Similarly, we have ranked Asian and European equities since June 30, 2002.
Under proprietary STARS (Stock Appreciation Ranking System), equity analysts
rank equities according to their individual forecast of an equity's future total
return potential versus the expected total return of a relevant benchmark (e.g., a
regional index (S&P Asia 50 Index, S&P Europe 350® Index or S&P 500® Index)),
based on a 12-month time horizon. STARS was designed to meet the needs of
investors looking to put their investment decisions in perspective. Data used to
assist in determining the STARS ranking may be the result of the analyst's own
models as well as internal proprietary models resulting from dynamic data
inputs.
S&P Global Market Intelligence's Quality Ranking
(also known as S&P Capital IQ Earnings & Dividend Rankings) - Growth and
stability of earnings and dividends are deemed key elements in establishing S&P
Global Market Intelligence's earnings and dividend rankings for common stocks,
which are designed to capsulize the nature of this record in a single symbol. It
should be noted, however, that the process also takes into consideration certain
adjustments and modifications deemed desirable in establishing such rankings.
The final score for each stock is measured against a scoring matrix determined
by analysis of the scores of a large and representative sample of stocks. The
range of scores in the array of this sample has been aligned with the following
ladder of rankings:
A+ Highest
B Below Average
A High
B- Lower
A- Above Average
C Lowest
B+ Average
D In Reorganization
NR Not Ranked
EPS Estimates
CFRA's earnings per share (EPS) estimates reflect analyst projections of future
EPS from continuing operations, and generally exclude various items that are
viewed as special, non-recurring, or extraordinary. Also, EPS estimates reflect
either forecasts of equity analysts; or, the consensus (average) EPS estimate,
which are independently compiled by S&P Global Market Intelligence, a data
provider to CFRA. Among the items typically excluded from EPS estimates are
asset sale gains; impairment, restructuring or merger-related charges; legal and
insurance settlements; in process research and development expenses; gains or
losses on the extinguishment of debt; the cumulative effect of accounting
changes; and earnings related to operations that have been classified by the
company as discontinued. The inclusion of some items, such as stock option
expense and recurring types of other charges, may vary, and depend on such
factors as industry practice, analyst judgment, and the extent to which some
types of data is disclosed by companies.
12-Month Target Price
The equity analyst's projection of the market price a given security will command
12 months hence, based on a combination of intrinsic, relative, and private
market valuation metrics, including Fair Value.
CFRA Equity Research
CFRA Equity Research is produced and distributed by Accounting Research &
Analytics, LLC d/b/a CFRA ("CFRA US"; together with its affiliates and
subsidiaries, "CFRA"). Certain research is produced and distributed by CFRA MY
Sdn Bhd (Company No. 683377-A) (formerly known as Standard & Poor's
Malaysia Sdn Bhd) ("CFRA Malaysia"). Certain research is distributed by CFRA UK
Limited ("CFRA UK"). CFRA UK and CFRA Malaysia are wholly-owned subsidiaries
of CFRA US.
Abbreviations Used in Equity Research Reports
CAGR - Compound Annual Growth Rate
CAPEX - Capital Expenditures
CY - Calendar Year
DCF - Discounted Cash Flow
DDM - Dividend Discount Model
EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation & Amortization
EPS - Earnings Per Share
EV - Enterprise Value
FCF - Free Cash Flow
FFO - Funds From Operations
FY - Fiscal Year
P/E - Price/Earnings
P/NAV - Price to Net Asset Value PEG Ratio - P/E-to-Growth Ratio PV - Present
Value
R&D - Research & Development ROCE - Return on Capital Employed ROE Return on Equity
ROI - Return on Investment
ROIC - Return on Invested Capital
ROA - Return on Assets
SG&A - Selling, General & Administrative Expenses
SOTP - Sum-of-The-Parts
WACC - Weighted Average Cost of Capital
Dividends on American Depository Receipts (ADRs) and American Depository
Shares (ADSs) are net of taxes (paid in the country of origin).
Qualitative Risk Assessment
Reflects an equity analyst's view of a given company's operational risk, or the
risk of a firm's ability to continue as an ongoing concern. The Qualitative Risk
Assessment is a relative ranking to the U.S. STARS universe, and should be
reflective of risk factors related to a company's operations, as opposed to risk
and volatility measures associated with share prices. For an ETF this reflects on
a capitalization-weighted basis, the average qualitative risk assessment
assigned to holdings of the fund.
STARS Ranking system and definition:
5-STARS (Strong Buy):
Total return is expected to outperform the total return of a relevant benchmark,
by a notable margin over the coming 12 months, with shares rising in price on an
absolute basis.
4-STARS (Buy):
Total return is expected to outperform the total return of a relevant benchmark
over the coming 12 months, with shares rising in price on an absolute basis.
3-STARS (Hold):
Total return is expected to closely approximate the total return of a relevant
benchmark over the coming 12 months, with shares generally rising in price on
an absolute basis.
2-STARS (Sell):
Total return is expected to underperform the total return of a relevant
benchmark over the coming 12 months, and the share price is not anticipated to
show a gain.
1-STAR (Strong Sell):
Total return is expected to underperform the total return of a relevant
benchmark by a notable margin over the coming 12 months, with shares falling
in price on an absolute basis.
Relevant benchmarks:
In North America, the relevant benchmark is the S&P 500 Index, in Europe and in
Asia, the relevant benchmarks are the S&P Europe 350 Index and the S&P Asia
50 Index, respectively.
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA.
7
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
Disclosures
S&P GLOBAL™ is used under license. The owner of this trademark is S&P Global Inc. or its
affiliate, which are not affiliated with CFRA Research or the author of this content.
Stocks are ranked in accordance with the following ranking methodologies:
STARS Stock Reports:
Qualitative STARS recommendations are determined and assigned by equity analysts. For
reports containing STARS recommendations refer to the Glossary section of the report for
detailed methodology and the definition of STARS rankings.
Quantitative Stock Reports:
Quantitative recommendations are determined by ranking a universe of common stocks
based on 5 measures or model categories: Valuation, Quality, Growth, Street Sentiment, and
Price Momentum. In the U.S., a sixth sub-category for Financial Health will also be displayed.
Percentile scores are used to compare each company to all other companies in the same
universe for each model category. The five (six) model category scores are then weighted
and rolled up into a single percentile ranking for that company. For reports containing
quantitative recommendations refer to the Glossary section of the report for detailed
methodology and the definition of Quantitative rankings.
STARS Stock Reports and Quantitative Stock Reports:
The methodologies used in STARS Stock Reports and Quantitative Stock Reports
(collectively, the "Research Reports") reflect different criteria, assumptions and analytical
methods and may have differing recommendations. The methodologies and data used to
generate the different types of Research Reports are believed by the author and distributor
reasonable and appropriate. Generally, CFRA does not generate reports with different
ranking methodologies for the same issuer. However, in the event that different
methodologies or data are used on the analysis of an issuer, the methodologies may lead to
different views or recommendations on the issuer, which may at times result in
contradicting assessments of an issuer. CFRA reserves the right to alter, replace or vary
models, methodologies or assumptions from time to time and without notice to clients.
STARS Stock Reports:
Global STARS Distribution as of December 31, 2019
Ranking
North America
Europe
Asia
Global
33.4%
56.1%
10.5%
100.0%
29.0%
54.8%
16.2%
100.0%
41.1%
46.4%
12.5%
100.0%
33.5%
54.6%
11.9%
100.0%
Buy
Hold
Sell
Total
Analyst Certification:
STARS Stock Reports are prepared by the equity research analysts of CFRA and its
affiliates and subsidiaries. Quantitative Stock Reports are prepared by CFRA. All of the
views expressed in STARS Stock Reports accurately reflect the research analyst's
personal views regarding any and all of the subject securities or issuers; all of the views
expressed in the Quantitative Stock Reports accurately reflect the output of CFRA's
algorithms and programs. Analysts generally update STARS Stock Reports at least four
times each year. Quantitative Stock Reports are generally updated weekly. No part of
analyst, CFRA, CFRA affiliate, or CFRA subsidiary compensation was, is, or will be directly
or indirectly related to the specific recommendations or views expressed in any Stock
Report.
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8
Stock Report | July 04, 2020 | NYSE Symbol: HD | HD is in the S&P 500
The Home Depot, Inc.
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