The Home Depot, Inc. (HD)

It's not all about Nardelli and with the wave of CEO expulsions, he could be history soon. The company executes well, generally keeps customers happy (sure, the Lowe's loyalists and Kingfisher fans will howl) but they do. Our projected annual return is 28.7% (8/25/2006) with a 9% growth rate and EPS stability that ranks in the top 5% of all companies. And they sell hot dogs, too.

Obnoxious CEO and silly Board of Directors of helped push stock price even further down to a very attractive risk/reward level. PE currently under 14 is very low for such a consistently growing franchise with such a solid balance sheet. I believe that fair value for these shares is about $50 using cash flow growth estimates of about 75% of most recent company performance. I'm buying here under $38 and hope to get a chance to buy even more should the stock price drop further. Very attractive upside here given the quality of the franchise.

I'm thinking this stock should do relatively well in the coming years partly because it's been rather beaten down lately and should bounce back. Its net profit margin has risen from less than 5% in 1997 to more than 7% recently. Its P/E, which is usually in the 20s or 30s or 40s is in the mid-teens.

Seems everyone says "sell HD / buy LOW". But HDs purchase of HughesSupply was shrewd, giving them growth beyond the DIY market. At $37, HD is under 1x sales, under 13 on TTM P/E, margins are expanding, ROE above 20%, earnings growth better than 15%. Historically, HD has not traded below a P/E of 11 in the last 10 yrs, and has hit at-least a P/E of 16 in every year. If the economy tanks, everyone's going to get hurt. HD is already priced as if the economy is dead...so there's little risk / lots of upside.

The market has overreacted. Growth has been steady over the tenure of current managment. Consideration needs to be given to managements attitude towards investors but the value is hard to pass up.

I expect to see more people fix up thier houses because 1) they can't sell/move so they make thier's nicer and 2) the housing market starts to recover end of 08 or beginning of 09 and people anticipate being able to sell thier homes.

HD is priced for mediocrity and housing collapse. It has an excellent balance sheet and owns much of the real estate. It has a rising dividend. The depressed price is based on housing sector fears and Nardelli pay. Although I don't expect HD to light the world on fire, it should outperform the S&P with a much lower risk of capital loss.

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As long as the GE culture that Nardelli brought to HD prevails, the company will be centrally controlled and employees will be subjected to numerical scrutiny that will relegate them to keeping their mouths shut and doing what they are told. Creativity disappears within this kind of environment. Employees who stay will be 9-5'ers. Growth will be by acquisition, not same store sales. The Nardelli culture has NOT been proven to be viable at Home Depot, and I don't look for the stock to improve. Peter Lynch stated in his book that he used visit shopping centers to see first hand which stores were the most active. I wonder what he would say if he visited HD stores today and compared them to those Bernie and Arthur operated prior to the Nardelli reign.

I am in HD and Lowes nearly every day in my business. HD has the feel of a funeral as the stores are hollow tombs devoid of traffic.
In contrast Lowes is in mid-stride of performing complete make-overs in the stores. Clean, inviting, and attracting the female (read decision maker for high margin items) shopper. Nardellis recent flap with self compensation versus employee rewards has driven a fatal wedge in relations. The result is poor employee morale with little prospect for change. When given a choice, consumers will choose Lowes over HD, which will further the erosion.
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Ok, someone said you either hate it or bet against those who hate it. I think the overpaid 'captain' is going to ride this one down with his "booty" in the lifeboat! After 2006's shot across the bow with housing declines -code orange, nix that - CODE RED!
Someone get me the crash cart!

cheap
very underlevered
company owns most of its stores
housing will eventually bounce back

This company should be boycotted as it has failed to be transparent to shareholders (see, their refusal to release store to store comparisons at the least shareholder's meeting). I believe there is a reason for their lack of transparency and the market will ferret it out, much to the dismay of current shareholders.

It's a great time to buy when a great company has gotten lots of bad publicity over an issue that is short-term in nature. The "angry shareholders" story has been blown out of proportion.

Trading at historically low PE multiple. Has shown consistent growth and profitablility for the past 15 years with slight margin compression through recession in 2001. Market underestimating the value of the industry over a long time horizon.

Given the earnings and discount rate, HD must grow earnings at a mere 5.5% annually for 10 years to justify its current stock price of $38.11.

Assume initial earnings of $6.12 billion grow at a rate of 13.20% (5yr average per the analysts) , and then discount those future earnings at a rate of 15.00%, we arrive at a net present value for the company's next 10 years of earnings of $56.2 billion. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%, and we arrive at a continuing value of $92.4 billion. To complete the calculation we add these two figures together, subtract the long-term debt for HD ($6.66 billion), and divide by the outstanding shares (2.06 billion) to get a per share intrinsic value of $68.74.

This is a beaten down stock thanks to idiotic leadership that always seems to say the wrong thing. Still a strong company that is spending $350M on improving customer service and store appearance. They are also reviewing the CEOs pay structure, signs they know they need to and are willing to make changes.

the market has a pessimistic long-term outlook for Home Depot. operating margins averaged nearly 11% over the past five years when the company owned the less-profitable HD Supply business. We remain comfortable with our long-term revenue growth and profitability assumptions. In my opinion, Home Depot is well positioned to emerge from this cyclical downturn as a more dominant force in the home-improvement market."

Current state of economy should favor cost cutting everywhere - expect that people will still want to re-model & repair homes, but more DIY... Should be good for Lowes & HD...