The Home Depot, Inc. (HD): Our Calculation of Intrinsic Value

Core Viewpoint - Home Depot is a leading home improvement retailer with strong competitive advantages and a robust cash flow generation capability, but its current market valuation suggests high expectations that may not be sustainable [1][6][7]. Group 1: Company Profile - Home Depot operates a vast network of warehouse-style stores and a highly integrated digital platform, serving both DIY consumers and professional contractors [1]. - The company benefits from significant scale in sourcing, logistics, and supplier relationships, which contribute to its operational efficiency and brand strength [1]. - Home Depot's disciplined capital allocation strategy supports consistent shareholder returns through dividends and share buybacks [1]. Group 2: DCF Analysis - Forecasted Free Cash Flows (FCFs) from 2025 to 2029 are projected to grow from $14.5 billion to $16.5 billion, with a total present value of FCFs calculated at $58.4 billion [2]. - The terminal value, calculated using a perpetuity growth model, is estimated at $242.8 billion, leading to a present value of the terminal value of $150.8 billion [2]. - The overall enterprise value is determined to be $209.2 billion, combining the present value of FCFs and the terminal value [3]. Group 3: Financial Metrics - Home Depot's net debt is approximately $63.7 billion, resulting in an equity value of about $145.5 billion [4][5]. - The intrinsic value per share is estimated at $146, while the current market price is around $375, indicating a margin of safety of -61% [5][6]. - The discount rate used in the DCF analysis is 10%, with a terminal growth rate of 3% [4]. Group 4: Investment Outlook - Home Depot is characterized as a high-quality, cash-generative retail franchise with strong exposure to professional contractors and best-in-class operating efficiency [4][6]. - Despite its strengths, the current valuation implies expectations that exceed conservative intrinsic value, suggesting limited margin of safety for investors [6][7]. - Future returns are likely to depend more on business execution rather than multiple expansion, indicating a cautious outlook for long-term investors [7].