The Home DepotHD278,40 $
Home Depot (NYSE: HD) — American trading network for the sale of tools and building materials. In addition to the United States, the company is developing its business in Canada and Mexico..
About company
Home Depot retails all sorts of household items in North America, starting from equipment and household appliances, finishing with building materials and small decorative products for the garden.
Sales structure. Geographically, Home Depot's management divides the business into two markets: internal and external. The domestic market is the main one for the company, since it brings 92% income due to the location of key assets in the US.
In addition to the geographical division, there is also an operational division., which also consists of two divisions. The first is the sale of goods, which brings 96% of total revenues. The second is the sale of services to customers: Installation, Delivery, maintenance and repair of purchased goods.
Assets. The main asset of Home Depot is a large-scale network of specialized stores, which at the end of 2021 has 2317 points. Of these, about 2006 stores in the United States, 182 — in Canada and 129 — in Mexico. The area of one store on average is about 10 000 м², and income per square meter — 604,74 $. In addition to the retail chain, Home Depot is actively developing online sales..
Detailed breakdown of revenue in 2021, billion dollars
| Goods for the inner garden | 15,546 | 10,3% |
| Household Appliances | 14,232 | 9,4% |
| Electrical appliances | 13,473 | 8,9% |
| Lumber | 13,344 | 8,8% |
| Instruments | 11,994 | 7,9% |
| Plumbing | 10,938 | 7,2% |
| Paint | 10,453 | 6,9% |
| Kitchen and bathroom | 10,432 | 6,9% |
| Products for outdoor garden | 10,317 | 6,8% |
| Building materials | 9,823 | 6,5% |
| Flooring | 9,225 | 6,1% |
| Equipment | 7,873 | 5,2% |
| Joinery | 7,412 | 4,9% |
| Decor | 6,095 | 4% |
Number of stores by year, things
| 2017 | 2284 |
| 2018 | 2287 |
| 2019 | 2291 |
| 2020 | 2296 |
| 2021 | 2317 |
2284
Why stocks can go up
Home Depot has two main growth drivers:
- Leadership in the U.S. home furnishings market. According to analysts' forecasts, in the following 5 years the market will grow by 15% to $621 billion.
- Dividends and buybacks. Home Depot's current rate of earnings is close to 100%.
Dynamics of profit distribution
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Annual dividend | 3,56 $ | 4,12 $ | 5,44 $ | 6 $ | 6,6 $ |
| Number of shares, million pieces | 1157 | 1104 | 1074 | 1077 | 1033 |
Management forecasts and comparison with competitors
Home Depot demonstrates stable financial results from year to year, and in 2022 the trend will continue - the management of the American company plans to reach the following financial indicators:
- total sales will increase by 3% to $155.6 billion;
- operating profit will grow by 4% to $23.96 billion;
- operating profitability will add 0,2% to 15,4%;
- net interest expense will be at the level of 1.6 billion dollars;
- the tax rate in 2022 will be 24,6%;
- net income per share will increase to 16,35 $.
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| Home Depot | 12,81 | 17,51 | 1,52 |
| Lowe’s | 10,44 | 14,11 | 1,84 |
| Walmart | 10,27 | 24,95 | 1,01 |
| Costco Wholesale | 18,99 | 32,87 | −0,56 |
| Target Corporation | 7,95 | 12,06 | 1,26 |
| Tractor Supply | 12,60 | 19,63 | 0,36 |
Arguments for
Confident position. Home Depot is a sector leader in North America as offline, and online. In the digital segment, the retailer confidently occupies the second line after Amazon, ahead of lowe's main competitor in sales by almost four times.
The power of the brand. The company has great intangible value - first of all, this applies to the Home Depot brand., which in the industry "Retailing and Consumer Goods" ranks fifth, inferior to Amazon, Alibaba, Nike and Louis Vuitton. The current brand value of the network is estimated at $ 70 billion.
Evaluation of brands of the sector "Retailing and Consumer Goods", billion dollars
| Amazon | 684 |
| Alibaba | 197 |
| Nike | 84 |
| Louis Vuitton | 76 |
| Home Depot | 70 |
| Walmart | 59 |
| Marlboro | 57 |
| Chanel | 47 |
| Hermes | 46 |
684
Payments to shareholders. The low level of capital expenditures of the retailer leads to the fact that, that all earned net profit management spends on dividends and buyback of shares. Over the past two coronavirus years, Home Depot has paid about $ 29 billion. Given the company's current capitalization of $ 290 billion, this is equivalent to a dividend yield. 10%.
Growth faster than the market. The high level of dividend payments allowed the shares of the American retailer to show more impressive dynamics in comparison with the S&P 500 and industry competitors: since the end of 2016, Home Depot's stock quotes have increased by 297%.
Dynamics of Home Depot in comparison with market benchmarks
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|
| Home Depot | 100 $ | 153 $ | 139 $ | 177 $ | 215 $ | 298 $ |
| S&P Retail Composite Index | 100 $ | 145 $ | 153 $ | 184 $ | 261 $ | 276 $ |
| S&P 500 | 100 $ | 128 $ | 123 $ | 149 $ | 175 $ | 212 $ |
Arguments against
Negative equity. Because of Home Depot's incredible generosity, its net worth has gone into the negative zone.. In the short term, this carries minimal risks., in the long term, it will lead to a decrease in the volume of repurchase, for example, as it was in 2020.
Appreciation. Home Depot multipliers on average on 20% above other industry companies with similar growth rates, e.g. Lowe's main competitor. Given the annual sales growth 3%, Reuter rating by EV multiplier / EBITDA close to 13 and P / E more 17 looks overpriced.
What's the bottom line?
Home Depot – A Defensive Story in the U.S. Retail Sector, which is growing faster than the market thanks to steady dividend payments and buybacks. At the moment, the annual profitability of the chain of stores is 5% against 4% average on the S index&P 500. The most successful moment of new purchases of the company's shares should be considered the assessment of EV / EBITDA approx. 12 and below, which corresponds to the value 260 $.
