1. 1
Anita Sayyed
Brandon Fenner
Daniel Krzak
Yuan Zhou
Home Depot
Valuation

2. Agenda
Market
Future
Growth potential
Management
Key assumptions
Forecast
Sensitivity analysis
Recommendation

3. The Introduction
 Maturity in the market
 Customer Service; Product Authority; and
Disciplined Capital Allocation
 Incorporated 1978, public in 1981
o Bernie Marcus and Arthur Blank

4. The Market
Strengths Weaknesses
 Strong adaptive
leadership
 Strong brand name
 Exclusive brand
partnerships
 High entry costs,
market is dominated
 Female customers
 Housing market
 Aging stores

5. Lowe’s Comparison
 Price vs Customer service
 Double the market cap
 Sales
o 83 Billion- Home Depot
o 56 Billion- Lowe’s

6. Home Depot’s Future
 Customer Service
 Shopping Experience
 Product Authority
 Innovative Products
 Disciplined Capital Allocation
 Different Strategy

7. Growth
 Retail Locations
 ONLINE
o Increased 36.5%
 International Expansion (Mexico and Canada)
 Housing Recession
o Controlled expenses
o Home Improvement stores

8. Management Team
Craig Menear, Chairman, CEO and
President
Carol Tomé, Executive VP - Corporate
Services & CFO
Matt Carey, Executive VP – CIO
Ted Decker, Executive VP –
Merchandising

9. Former CEO
Frank Blake, former CEO and
Chairman
CEO and Chairman since
2007
Shares are up 127% since
Blake took over in 2007
U.S. housing crash
Data breach

10. Sales Assumptions
Net Sales Growth for FY’s 2015-2019
5.1%, 4.5%, 4.1%, 3.6%, 3.4%
HD underguides and overperforms
Interest rates/mortgage rates
Open 2-6 new stores per year
Unemployment levels
Housing market and appreciation

11. Key Assumptions
Gross profit increases 34.8% to
35.7%
Share repurchases on average $6B
per year
Debt increases $17B -$22.4B
Dividend payout increases $3 to
$4.4B
Capital expenditures increase $1.6B
to $1.8B

12. Forecasted Income Statement
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Sales $87,383 $91,302 $95,071 $98,537 $101,908
Gross
Profit
$30,418 $31,965 $33,769 $35,099 $36,402
Operating
Profit
$11,592 $12,775 $14,280 $15,449 $16,693
Net
Income
$6,755 $7,435 $8,278 $8,961 $9,717
EPS $5.16 $5.88 $6.82 $7.61 $8.49

13. WACC
Beta 1.10
Cost of equity capital 8.3%
After-tax cost of debt 2.69%
Weight of debt 0.114
Weight of equity 0.886
WACC 7.70%

14. Valuation
Terminal growth rate 2.60%
GDP + Housing Impact
Stock value/share $120
Slightly undervalued to current
market trading range of $114-$118

15. Sensitivity Analysis
Our Assumptions:
WACC
Rate of growth in terminal period
Sales growth rate

16. Sensitivity Analysis
Terminal Growth Rate and WACC
High Terminal Forecasted
Terminal
Low Terminal
High WACC $112.31 $107.64 $103.37
Forecasted
WACC
$125.50 $119.73 $114.51
Low WACC $145.42 $137.80 $130.97

17. Sensitivity Analysis
Terminal Growth Rate and WACC
High Terminal Forecasted
Terminal
Low Terminal
High WACC $112.31 $107.64 $103.37
Forecasted
WACC
$125.50 $119.73 $114.51
Low WACC $145.42 $137.80 $130.97

18. 18
Sensitivity Analysis
WACC and Sales
High Sales Forecasted
Sales
Low Sales
High WACC $109.80 $107.64 $105.66
Forecasted
WACC
$122.13 $119.73 $117.53
Low WACC $140.58 $137.80 $135.27

19. Sensitivity Analysis
WACC and Sales
High Sales Forecasted
Sales
Low Sales
High WACC $109.80 $107.64 $105.66
Forecasted
WACC
$122.13 $119.73 $117.53
Low WACC $140.58 $137.80 $135.27

20. Sensitivity Analysis
Terminal Growth Rate and Sales
High Sales Forecasted
Sales
Low Sales
High Terminal $128.03 $125.15 $123.19
Forecasted
Terminal
$122.15 $119.73 $117.53
Low Terminal $116.83 $114.51 $112.40

21. 21
Sensitivity Analysis
Terminal Growth Rate and Sales
High Sales Forecasted
Sales
Low Sales
High Terminal $128.03 $125.15 $123.19
Forecasted
Terminal
$122.15 $119.73 $117.53
Low Terminal $116.83 $114.51 $112.40

22. 22
Sensitivity Analysis
Realistic Range
Higher and lower sales result in price range of $117
to $122
ROPI valuation $114
The realistic range is $114 to $122
Home Depot’s current trade range $114-$118

23. 23
Recommendation: Buy
✓ Increasing sales
✓ Increasing margins
✓ Dividends
✓ Stock buy back programs
✓ Key initiatives
✓ Individual investor: buy and hold

24. 24
Questions
?