Home Depot (HD) Stock Analysis

Home Depot Dividend

The Home Depot dividend has been paid continuously since 1993 and increased for 15 consecutive years; qualifying the company as a Dividend Contender.

Current Dividend Annualized: $9.00

Home Depot (HD) Intrinsic Value – Margin of Safety Analysis            

(updated December 2024)

Normalized Diluted Earning Per Share (TTM): $14.73
Free Cash Flow Per Share (TTM):  $16.76
Cash Flow From Operations (CFO) Per Share (TTM): $20.03

Estimated Intrinsic Value: $270

Target Buy Price Based on Required Margin of Safety = $270
(Required Margin of Safety Based On Risk Stability
Grade:
A = 0%, B = 20%, C = 40%, D = 60%, F = 80%)

Target SELL Price Based on Estimated Intrinsic Value = $378
(Allow Overvaluation Adjusted by Risk Stability Grade:

A = 40%, B = 25%, C = 15%, D = 5%, F = 0%)

Risk / Stability Grade: A

A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.

B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.

C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.

D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.

F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.

Financial Risk Grade: B+

A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.

B grade indicates a very low probability for a dividend cut.

C grade indicates a low probability for a dividend cut and/or average safety risk.

D grade indicates there are issues that should be considered concerning future dividend payments.

F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.

Earnings Quality Grade: A

A grade indicates earnings quality is high or far above average.

B grade indicates earnings quality is good and/or above average.

C grade indicates earnings quality is acceptable or average.

D grade indicates earnings quality is poor and requires thoughtful due diligence.

F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Earnings Report: 10/31/24

Company Description

Sector: Consumer Cyclical
Industry: Home Improvement Stores

Home Depot is the world’s largest home improvement specialty retailer, operating nearly 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico.

Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals.

The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations sector, while the tie-up with Company Store brought textile expertise to the brand.

SWOT Analysis For Home Depot

Strengths

Home Depot is benefiting from a robust housing market and its extensive improvements in their merchandising and distribution system. The company’s capital allocations have been used to increase shareholder value through rising dividends, stock buybacks, and capital investments.

Home Depot has sustainable competitive advantages because of its size. It is a low cost provider with significant bargaining power with its suppliers and vendors. The company is investing in technologies that allow customers to connect across multiple platforms and associates to more efficiently provide quality customer service.

Weaknesses

Much of success of Home Depot stock can be attributed to internal productivity gains and massive stock buybacks, both of which are unsustainable. There has been little growth from new stores. Some analysts fear that stock buybacks have inhibited capital expenditures that will damage long term prospects.

Opportunities

Home Depot is making a concerted effort to better serve professional customers. This is a market where there is meaningful prospects for gaining market share.

Threats

In an era where consumers are gravitating towards e-commerce a company must be in a constant mode of change. In addition the home improvement business is highly cyclical, especially as they increase their professional business market share. Competition is always a concern.

Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.