|The Home Depot, Inc.||Stock
March 19, 2005
|Recommendation:||12-Month Target Price: $48.00
(as of November 16, 2004)
|HD has an approximate 0.77% weighting in the S&P 500|
|Summary:HD operates a chain of more than 1,800 retail warehouse-type stores, selling a wide variety of home improvement products for the do-it-yourself and home remodeling markets.|
|Price as of 03/18/05:||$38.88||2006E S&P Core EPS:||$2.53||
GAAP Earnings vs. Previous Year
Up Down No Change
|Analyst commentary prepared by Michael Souers/MF/JWP|
|Business Summary March 01, 2005|
With revenues exceeding $72 billion, Home Depot, founded in 1978, is the world's largest home improvement retailer, and the second largest U.S. retailer. The company mainly operates retail warehouse-type stores that sell a wide assortment of building materials and home improvement and lawn and garden products, primarily to the do-it-yourself and home remodeling markets. At July 31, 2004, HD operated 1,788 stores, including 1,716 Home Depot stores (105 in Canada and 42 in Mexico), 54 EXPO Design Centers, five Home Depot Supply stores, 11 Home Depot Landscape Supply stores, and two Home Depot Floor stores.
Home Depot stores average 107,000 sq. ft., plus 22,000 sq. ft. of garden center and storage space. They stock 40,000 to 50,000 items, including brand name and proprietary items. HD aims to provide a broad range of merchandise, consisting of many different kinds of building and home improvement materials, at competitive prices. The company trains employees to be knowledgeable about the products in the stores; employees may also have trade skills or direct experience in using the products. HD also offers installation services for do-it-for-me customers, typically homeowners who purchase materials themselves and hire third parties to complete the project and/or installation. In FY 04, the company acquired Installed Products U.S.A., a roofing and fencing installed services business; and RMA Home Services, a replacement windows and siding installed services business.
Home Depot Landscape Supply stores are designed to extend the reach of Home Depot's garden departments, by focusing on professional landscapers and avid do-it-yourself garden enthusiasts.
EXPO Design Centers, which average about 100,000 sq. ft., sell more upscale products and services primarily for home decorating and remodeling projects. Unlike Home Depot stores, they do not sell building materials and lumber.
In late FY 04, under The Home Depot Supply brand, the company combined three wholesale businesses: Maintenance Warehouse, a distributor of maintenance, repair and operations supplies to the multi-family housing, hospitality and lodging industries; Apex Supply Company, a distributor of plumbing, HVAC, appliances and other related products primarily to trade and mechanical contractors; and HD Builder Solutions Group, which provides professional homebuilders with flooring, countertops and window treatments. HD's e-commerce site, homedepot.com, sells about 10,000 products over the Internet. In FY 04, the site was enhanced to allow customers to sign up for in-home consultations for HD's installation services.
During FY 05, HD acquired White Cap Construction Supply, Inc., which now operates 74 Pro distribution branches across the U.S. The company also purchased 20 Home Mart stores in Mexico, bringing the total to 42.
|Company Financials Fiscal year ending January 31|
|Per Share Data ($)
(Year Ended January 31)
|Tangible Book Value||NA||9.56||8.39||7.53||6.32||5.22||3.83||3.17||2.71||2.28|
|S&P Core Earnings||NA||1.78||1.46||1.18||1.01||NA||NA||NA||NA||NA|
|Income Statement Analysis (Million $)|
|Effective Tax Rate||NA||37.1%||37.6%||38.6%||38.8%||39.0%||39.2%||38.6%||38.7%||38.8%|
|S&P Core Earnings||NA||4,067||3,414||2,780||2,364||NA||NA||NA||NA||NA|
|Balance Sheet & Other Financial Data (Million $)|
|Long Term Debt||NA||856||1,321||1,250||1,545||750||1,566||1,303||1,247||720|
|% Long Term Debt of Capitalization||NA||3.5||6.1||6.4||9.2||5.7||15.1||15.2||16.9||16.9|
|% Net Income of Revenues||NA||6.6||6.3||5.7||5.6||6.0||5.3||4.8||4.8||4.7|
|% Return on Assets||NA||13.4||13.0||12.7||13.4||15.2||13.1||11.3||11.2||11.1|
|% Return on Equity||NA||20.4||19.3||18.4||18.9||22.0||20.4||17.8||17.1||17.4|
|Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs. Bold denotes primary EPS - prior periods restated. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review.|
|Office: 2455 Paces Ferry Road, Atlanta, GA 30339-1834.
Chrmn, Pres & CEO: R.L. Nardelli
EVP & CFO: C.B. Tome
EVP, Secy & General Counsel: F.L. Fernandez
|VP & Investor Contact: D. Dayhoff
Directors: G. D. Brenneman, R. H. Brown, J. L. Clendenin, B. R. Cox, C. X. Gonzalez, M. A. Hart III, B. G. Hill, L. P. Jackson, Jr., L. R. Johnston, K. G. Langone, R. L. Nardelli, R. S. Penske.
S&P Analyst: Michael Souers/MF/JWP
S&P Recommendation - Since January
1, 1987, Standard and Poor's has ranked a universe of common stocks based
on a given stock's potential for future performance. Under proprietary
STARS (Stock Appreciation Ranking System), S&P equity analysts rank
stocks according to their individual forecast of a stock's future capital
appreciation potential versus the expected performance of the S&P
500 index (before dividends), based on a 12-month time horizon. STARS
was designed to meet the needs of investors looking to put their investment
direction in perspective.
S&P 12-Month Target Price - The S&P 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.
Quantitative Evaluations - In contrast to our qualitative STARS recommendations, which are assigned by S&P analysts, the quantitative evaluations described below are derived from proprietary arithmetic models. These computer-driven evaluations may at times contradict an analyst's qualitative assessment of a stock. One primary reason for this is that different measures are used to determine each. For instance, when designating STARS, S&P analysts assess many factors that cannot be reflected in a model, such as risks and opportunities, management changes, recent competitive shifts, patent expiration, litigation risk, etc.
S&P Earnings & Dividend (Quality) Rank
- S&P's appraisals of the growth and stability of earnings and dividends
over the past 10 years for individual companies are indicated by the following
quality ranks. Quality Rankings are not intended to predict stock movements.
S&P Fair Value Rank - Using S&P's exclusive
S&P Fair Value Calc. - The price at which a stock should trade at, according to S&P's proprietary quantitative model that incorporates both actual and estimated variables (as opposed to only actual variables in the case of S&P Earnings & Dividend Rankings). Relying heavily on a company's actual return on equity, the S&P Fair Value model places a value on a security based on placing a formula-derived price-to-book multiple on a company's consensus earnings per share estimate.
Investability Quotient (IQ) - The IQ is a measure of investment desirability. It serves as an indicator of potential medium-to-long term return and as a caution against downside risk. The measure takes into account variables such as technical indicators, earnings estimates, liquidity, financial rations and selected S&P proprietary measures.
Volatility - Rates the volatility of the stock's price over the past year.
Technical Evaluation - In researching the past market history of prices and trading volume for each company, S&P's computer models apply special technical methods and formulas to identify and project price trends for the stock.
Relative Strength Rank - Shows, on a scale of 1 to 99, how the stock has performed versus all other companies in S&P's universe on a rolling 13-weeks basis.
Global Industry Classification Standard (GICS) - An industry classification standard, developed by Standard and Poor's in collaboration with Morgan Stanley Capital International (MSCI). GICS is currently comprised of 10 Sectors, 24 Industry Groups, 62 Industries, and 132 Sub-industries.
S&P Core Earnings - Standard and Poor's Core Earnings is a uniform methodology for calculating operating earnings, and focuses on a company's after-tax earnings generated from its principal businesses. Included in the definition of its principal businesses. Included in the definition are employee stock option grant expenses, pension costs, restructuring charges from ongoing operations, write downs of depreciable or amortizable operating assets, purchased research and development, M&A related expenses and unrealized gains/losses from hedging activities. Excluded are pension gains, impairment of goodwill charges, gains or losses from asset sales, reversals of prior-year charges and provision from litigation or insurance settlements.
|Required Disclosures||Other Disclosures|
As of December 31, 2004, SPIAS and their research analysts have recommended 26.5% of issuers with buy ratings, 61.3% with hold ratings and 12.2% with sell ratings.
All views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part or analyst compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed in this research report.
For purposes of this report, 4 & 5 STARS are BUYS, 1 & 2 STARS are
SELLS and 3 STARS are HOLDS. The BUY-HOLD-SELL ranking system used in this report is a
consolidated version of our proprietary STARS ranking system defined below:
4-STARS: Total return is expected to outperform the total return of the S&P 500 Index, with shares rising in absolute price.
3-STARS: Total return is expected to closely approximate that of S&P 500 Index, with shares generally rising in price.
2-STARS: Total return is expected to underperform the total return of the S&P 500 Index, and share price is not anticipated to show a gain.
1-STAR: Total return is expected to underperform the total return of the S&P 500 Index, with shares falling in absolute price.
One or more affiliates of SPIAS received non-investment banking compensation from this company during the past 12 months.
This research report was prepared by Standard & Poor's Investment Advisory services LLC ("SPIAS"). This report may have been provided to you either by (i) S&P under a license agreement with The McGraw-Hill Companies, Inc. ("McGraw-Hill"), which holds the copyright of this report or (ii) a S&P's client who is granted a sub-license by S&P. The equity research report and recommendations are performed separately from any other analytic activity of Standard & Poor's. Standard and Poor's equity research analysts have no access to non-public information received by other units of Standard & Poor's. Standard & Poor's does not trade on its own account.
This investment analysis was prepared from the following sources: S&P MarketScope, S&P Compustat, S&P Industry Reports, I/B/E/S International, Inc., Standard & Poor's, 55 Water St., New York, NY 10041. (212) 438-2000.
Redistribution or reproduction is prohibited without written permission.
Copyright © 2005 The McGraw-Hill Companies, Inc.