An analysis of HD as a HOLD with the potential upside of +11%

1. The Home Depot
Nhat Pham and Jake Cummings

2. Investment Thesis 3
Company Overview 4
Growth Opportunities & Drivers 6
Valuation 11
Risks & Final Thoughts 14
Appendix 16

3. Investment Thesis
Strong presence
and
infrastructure in
North America
 Incredibly high fixed assets and a strong
presence in North America
 Strong stop on building new stores in the last 3
years
 Home Depot sells products that most customers
buy in person which protects sales from Amazon
 Despite the protected threat from e-commerce,
HD is expanding into their own online stores
 HD caters to business professionals buying big
ticket items that are bulky and expensive to ship
Macroeconomic
trends that
greatly impact
sales and
opportunities
 Overall macroeconomics have only positively
effected sales but future market trends may have
a negative impact
 Heavy dependence on the housing market
 Tariffs could hurt sales
Valuation Range
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Investment Thesis
120 145 170 195 220 245 270
DCF Perpetuity Growth
DCF Exit Multiple
Comparables EV/EBITDA
Comparables P/E
52-Wk trading range
Operate in a
niche market
that is protected
from the threat
of e-commerce
Current Price
$196.38
Target Price
$217.87

4. Company Overview
Company Description
 Started in Atlanta, GA, Home Depot has over 2,200 locations mainly
in the United States and an additional 179 in Canada and 91 in
Mexico
 Has locations in almost every major town/city in the U.S. with an
online store as well
 Home Depot is the world’s largest home improvement retailer with
sales mainly from an assortment of building/home improvement
materials, lawn/garden products
 Also has an installation and rental portion as well
 Stores average 105,000 square feet with an additional 24,000 square
foot garden center outside
Market Data
Current Price $196.38
Market Cap $224.69 Bn
Annual Dividend % 43.07%
Dividend Yield 2.1%
Curr Shares Out 1.14 Bn
Value
EV/EBITDA 14.26x
EV/Sales 2.38x
Price/Book 111.19x
Price/Earnings 23.13x
PEG 1.06x
Operation
Revenue
104.32 Bn
EBITDA Margin
17.99%
Operating Margin
14.69%
Profit Margin
8.7%
Capital Structure
Debt
25.50 Bn
Cash & Equivalent
3.49 Bn
Quick Ratio
0.37x
Current Ratio
1.13x
Key Statistics
Stock Performance
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
$50
$70
$90
$110
$130
$150
$170
$190
$210
$230
$250
10/5/2017 12/5/2017 2/5/2018 4/5/2018 6/5/2018 8/5/2018 10/5/2018
Volume Close

5. Home Depot’s Services Portfolio Store Locations U.S. and Worldwide
Company Overview
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

6. By products By Geography
Revenue Breakdown
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
10%
8%
8%
8%
7%
7%
7%
7%
7%
7%
6%
5%
5%
5%
3%
$100.9B in
Revenue (2018)
Indoor Garden
Appliances
Paint
Lumber
Tools
Kitchen and Bath
Plumbing
Building Materials
Flooring
Outdoor Garden
Hardware
Millwork
Electrical
Lighting
Decor
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
[CELLRANGE]
20,000.0 40,000.0 60,000.0 80,000.0 100,000.0 120,000.0
2016
2017
2018
United States International
 Most of the revenue is generated from the US
 Diversity in the product portfolio
 Revenue is distributed through all products
 They don’t depend on a small selection of
products or groups of products

7. Revenue and E-Commerce Growth
Growth in Recent Years
 Home Depot has seen a CAGR of just over 6% growth in revenue
over the past 5 years (6.7% growth in FY 2017)
 Net margin continues to increase since FY2013 with a ~14 bps
increase y/y in FY2017
 Booming sales in Q2 2018 as the company achieved an EPS of
$3.05 compared to an expected EPS of $2.84
 Revenue increased 8.4% from the previous year to 30.46 billion,
beating the expected value of 30.06 billion
Expansion in E-Commerce Market
 Home Depot plans to spend roughly $1.2 billion over next 5 years to
upgrade online shopping capabilities
 Will add 170 distribution facilities and 7 e-commerce fulfillment
centers to reach 90% of the US population in one day or less
 Sales increased from $500m in 2009 to over $6bn today and an
impressive 21.5% growth in FY2017
 5th largest online retailer in the US
Sales Growth
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

8. Dependency on the Housing Market
Effect on Sales
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
 Hardline retail quarterly same-store sales correlate very closely with
US housing starts with a correlation coefficient of .76
 Despite the decline in the housing market Home Depot showed great
results with an 8% comparable sales growth in Q2 2018
 We expect Home Depot’s Q3 results to be similar
 It may be a challenge to continue to see such growth in 2019 as
residential investment growth rate will decelerate to 1.1% in Q4
 Home Depot’s performance relies partly on the stability of the housing,
residential construction and home improvement markets
 These markets have been resilient recently but can experience wild
swings over the course of a short time
 Increase in interest rates will make mortgages more expensive and will
likely slow down the housing market
 June of 2018 saw a decline of US housing starts by 12%, building
permits by 2.2% and multi-family housing segment by 19.8%
Recent Housing Market Trends

9. Housing Market and Weather
Unrecognized Major Drivers of the Housing Market
 Recent focus and probable over focus has mainly been on the rise of
interest rates, however, 30-year mortgage rates are near 30-year lows
and buyer confidence is at an all time high
 Average age of a first-time homebuyer is 33 years old which is the age
of the oldest millennial population who make up about 34% of the US
population
 New home inventory is at an all time high which is beneficial for HD’s
business
 Existing home inventory is declining at an accelerating rate which will
increase sales volume and home prices, leading to a rise in customers
and revenues
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
 Specifically extreme weather events impact revenues and stock price
 Signs point toward El Niño forming in 2019
 In preparation for Hurricane Florence Home Depot’s stock rose 3.7%
Weather impact on Home Depot’s Revenues
$63.92
$91.15

10. High Entry Barriers Industry and Diversification
Home Improvement Industry Saturation
 Since the home improvement industry is nearing saturation thus
making sure brand equity is highly valued by customers cementing
HD’s position and stability
 Massive amount of capital and expertise are required to open stores
and thrive in an industry where the name is valued so highly
Home Depot’s Business Cycle
 Has a great ability to perform throughout the whole business cycle
 In weak economic times Home Depot will gain revenue from DIY
products and services
 In strong economic times Home Depot will gain more revenue from
professional sales
 Highly diversified customer base provides company stability
 45% of sales come from professionals
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

11. Valuation Overview
Current Price
$196.38
Target Price
$217.87
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
120 145 170 195 220 245 270
DCF Perpetuity Growth
DCF Exit Multiple
Comparables EV/EBITDA
Comparables P/E
52-Wk trading range

12. Intrinsic Valuation
Valuation commentary Traditional DCF Sensitivity
2019E 2020E 2021E 2022E 2023E
Revenue $107,967 $115,525 $123,612 $132,265 $141,523 7.00%% growth 7.00% 7.00% 7.00% 7.00%
EBITDA 12,853.7 14,582.2 15,917.1 17,517.7 18,744.0 9.89%% margin 11.91% 12.62% 12.88% 13.24% 13.24%
Less: Depreciation (1,080) (1,155) (1,236) (1,323) (1,415)
EBITDA 11,774.0 13,427.0 14,681.0 16,195.1 17,328.7 10.14%% margin 10.91% 11.62% 11.88% 12.24% 12.24%
Taxes (3,243) (3,475) (3,723) (3,990) (4,275)
EBIAT 8,530.9 9,952.1 10,957.7 12,205.5 13,053.9 11.22%
Plus: Depreciation 1,080 1,155 1,236 1,323 1,415
Less: CapEx (1,620) (1,733) (1,854) (1,984) (2,123)
Less: Change in NWC 522 250 44 (76) (82)
Unlevered Free Cash Flow 8,513.2 9,624.3 10,384.0 11,468.0 12,264.7 9.56%
Discount Period 0.5 1.5 2.5 3.5 4.5
Present Value of Projection Period 8,170 9,624 10,384 11,468 12,265
Present Value of Projection Period 51,911
Projection Period CAGR
('19-'23)
($ in billion except per share data)
 Revenue continue to grow at 7% with the profit margin of 15%
 With strong stop in opening brick-and-mortar locations, CapEx might
decrease from 1.9% of Revenue in 2018 to 1.5% of Revenue
 New tax policy reduces the tax expenses
 The implied value of a share is $187.06
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
VND 0 11.7x 12.2x 12.7x 13.2x 13.7x
7.4% 159.87 159.87 159.87 159.87 159.87
7.9% 187.06 187.06 187.06 187.06 187.06
8.4% 187.06 187.06 187.06 187.06 187.06
8.9% 159.87 159.87 159.87 159.87 159.87
9.4% 120.98 120.98 120.98 120.98 120.98
0.00 2.50% 2.75% 3.00% 3.25% 3.50%
7.4% 137.66 146.22 155.75 166.43 178.46
7.9% 158.65 169.50 181.72 195.62 211.53
8.4% 158.65 169.50 181.72 195.62 211.53
8.9% 137.66 146.22 155.75 166.43 178.46
9.4% 106.45 112.13 118.33 125.13 132.62
WACC
Enterprise Value
EBITDA Exit Multiple
WACC
Perpetuity Growth Rate

13. Multiples Analysis
($ in billion except per share data)
 LOW is the biggest competitor
 With the advantage of market share, both domestically and
internationally, HD does not have many competitor in the home-
improvement industry
 Implied value of a share is $238.94
Company Name Ticker
Current Share
Price
% of 52-wk.
High
Market Cap.
Enterprise
Value
LTM Revenue LTM EBITDA
LTM
EV / EBITDA
LTM
P/E
LTM
EPS
LTM EBITDA
Margin
Lowe's Companies Inc. (NYSE: LOW) 109.74 93.24% 89 106.34 70.51 8.05 13.22 23.08 4.75 11.42%
Kingfisher PLC (U.K.: KGF) 249.9 68.28% 5.3 5.37 11.73 0.832 6.45 13.66 18.3 7.09%
Floor & Décor Hldgs (NYSE: FND) 28.58 49.04% 2.78 3.25 1.57 0.17838 18.2 20.97 1.36 11.36%
1st Quartile 49.04% 2.8 3.3 1.6 0.2 6.5 13.7 1.4 7.09%
Median 68.28% 5.3 5.4 11.7 0.8 13.2 21 4.8 11.36%
3rd Quartile 93.24% 89 106.3 70.5 8.1 18.2 23.1 18.3 11.42%
Home Depot, Inc. (NYSE: HD) 196.38 91.16% 224.69 259.44 104.32 17.26 15.03 23.16 8.6 16.55%
Valuation commentary
1st Quartile Median 3rd Quartile
Implied Price 117.82 180.60 198.66
Upside -40.00% -8.04% 1.16%
1st Quartile Median 3rd Quartile
Implied Price 112.18 207.83 279.21
Upside -42.88% 5.83% 42.18%
P/E
EV/EBITDA
Implied Valuation
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

14. Situation Analysis
S W
TO
 Stellar management team
 E-commerce and Amazon haven’t
affected sales too much
 Has a 58% market share compared to
just 39% for Lowes
 Current CIO is former eBay executive
providing invaluable experience when
expanding in to e-commerce
 Has the option to expand in
international operations
 Just acquired Interline with a focus on
the MRO market combining only 5% of
the market share
 Heavily dependent on macro
economic trends
 Home improvement industry is near
saturation
 Rising interest rates is likely to lead
in a decline in the housing market
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

15. Investment Thesis
Strong presence
and
infrastructure in
North America
 Incredibly high fixed assets and a strong
presence in North America
 Strong stop on building new stores in the last 3
years
 Home Depot sells products that most customers
buy in person which protects sales from Amazon
 Despite the protected threat from e-commerce,
HD is expanding into their own online stores
 HD caters to business professionals buying big
ticket items that are bulky and expensive to ship
Macroeconomic
trends that
greatly impact
sales and
opportunities
 Overall outside forces have only positively
effected sales or business but future market
trends may have a negative impact
 Heavy dependence on the housing market
 Tariffs could hurt sales
Valuation Range
Recommendation
120 145 170 195 220 245 270
DCF Perpetuity Growth
DCF Exit Multiple
Comparables EV/EBITDA
Comparables P/E
52-Wk trading range
 We recommend a HOLD of Home Depot with a potential
upside of approximately 11%; however, be cautious
regarding macroeconomic trends that greatly impact
revenue and profit margins
Operate in a
niche market
that is protected
from the threat
of e-commerce
Current Price
$196.38
Target Price
$217.87
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

16. Appendix
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

17. HD vs SPX Index
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix

18. Income Statement
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
Fiscal year ends at January 31st Fiscal Year Ended
2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E
Income Statement
Revenue $88,519 $94,595 $100,904 $107,967 $115,525 $123,612 $132,265 $141,523
% Growth 6.9% 6.7% 7.0% 7.0% 7.0% 7.0% 7.0%
Total Expenses 76,745 81,168 86,223 91,772 98,196 105,070 112,425 120,295
Gross Profit $11,774 $13,427 $14,681 $16,195 $17,329 $18,542 $19,840 $21,228
% Margin 13.3% 14.2% 14.5% 15.0% 15.0% 15.0% 15.0% 15.0%
Interest Expense 919 972 1,057 $826 $856 $886 $916 $946
Other Expense (Income) (166) (36) (74) (74) (74) (74) (74) (74)
Total Other Expenses $753 $936 $983 $752 $782 $812 $842 $872
Earnings Before Taxes $11,021 $12,491 $13,698 $15,443 $16,547 $17,730 $18,998 $20,357
Corporate Taxes 4,012 4,534 5,068 3,243 3,475 3,723 3,990 4,275
Net Earnings $7,009 $7,957 $8,630 $12,200 $13,072 $14,007 $15,008 $16,082
% Margin 7.9% 8.4% 8.6% 11.3% 11.3% 11.3% 11.3% 11.4%
Metrics & Drivers
Corporate Tax Rate 36.4% 36.3% 37.0% 21.0% 21.0% 21.0% 21.0% 21.0%

19. Balance Sheet
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
Fiscal year ends at January 31st Fiscal Year Ended
2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E
Balance Sheet
Cash and Cash Equivalents 2,216 2,538 3,595 3,708 3,816 4,016 4,428 5,224
Accounts Receivable 1,890 2,029 1,952 1,923 2,057 2,201 2,355 2,520
Inventories 11,809 12,549 12,748 13,280 14,094 15,081 16,136 17,266
Other Current Assets 1,078 608 638 1,080 1,155 1,236 1,323 1,415
Total Current Assets 16,993 17,724 18,933 19,991 21,122 22,534 24,242 26,426
Net Property, Plant & and Equipment 22,191 21,914 22,075 $22,615 $23,192 $23,811 $24,472 $25,179
Other Long-Term Assets 3,365 3,328 3,521 3,521 3,521 3,521 3,521 3,521
Total Assets 42,549 42,966 44,529 46,126 47,836 49,865 52,235 55,126
Payables & Accruals 10,057 10,704 11,108 $12,416 $13,516 $14,586 $15,607 $16,700
Other Current Liabilities 2,042 2,177 2,325 2,483 2,657 2,843 3,042 3,255
Total Current Liabilities 12,099 12,881 13,433 14,899 16,173 17,429 18,649 19,955
Total Debt 21,315 23,601 27,028 28,028 29,028 30,028 31,028 32,028
Other Long-Term Liabilities 2,819.0 2,151.0 2,614.0 2,614.0 2,614.0 2,614.0 2,614.0 2,614.0
Total Liabilities 36,233 38,633 43,075 45,541 47,815 50,071 52,291 54,597
Shareholders' Equity 6,316.0 4,333.0 1,454.0 585 20 (206) (56) 529
Total Liabilities and Equity 42,549.0 42,966.0 44,529.0 46,126 47,836 49,865 52,235 55,126

20. Cash Flow Statement
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix
Fiscal year ends at January 31st Fiscal Year Ended
2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E
Cash Flow Statement
Net Earnings $8,630 $12,200 $13,072 $14,007 $15,008 $16,082
Depreciation 1,080 1,155 1,236 1,323 1,415
Change in Working Capital 522 250 44 (76) (82)
Cash From Operating Activities $13,802 $14,477 $15,287 $16,255 $17,415
Capital Expenditures (1,620) (1,733) (1,854) (1,984) (2,123)
Cash From Investing Activities ($1,620) ($1,733) ($1,854) ($1,984) ($2,123)
Dividends ($4,088) ($4,153) ($4,232) ($4,332) ($4,436)
Share Repurchases (8,981) (9,484) (10,000) (10,527) (11,060)
Change in Debt 1,000 1,000 1,000 1,000 1,000
Cash From Financing Activities ($12,069) ($12,637) ($13,232) ($13,859) ($14,496)
Change in Cash $113 $107 $200 $412 $796
Beginning Cash $3,595 $3,708 $3,816 $4,016 $4,428
Ending Cash 3,595 3,708 3,816 4,016 4,428 5,224
Metrics & Drivers
Free Cash Flow $12,182 $12,744 $13,433 $14,271 $15,293
Operating Profit 11,774 13,427 14,681 16,195 17,329
EBITDA 12,854 14,582 15,917 17,518 18,744

21. Cash Flow Statement
Investment Thesis Company Overview Growth Opportunities
& Drivers
Valuation Risk &
Final thoughts
Appendix