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Home Depot: Estimated Fair Value Of $243 Per Share

Jun. 11, 2020 9:55 AM ETThe Home Depot, Inc. (HD)LOW12 Comments
Anh Hoang profile picture
Anh Hoang


  • Home Depot has maintained its market leading positions with a high level of customer loyalty.
  • It reported a growing revenue but declining profit in the first quarter of 2020, due to COVID-19 related expenses.
  • It has strong balance sheet with good liquidity position.
  • It could be worth $243 per share.

Home Depot (NYSE:HD) has always been considered a good stock for long-term income investors, with consecutive dividend payments since 1987. In the past decade, Home Depot has outperformed the S&P 500 by more than three times. As Home Depot has recently reached its all-time high, with the highest EBITDA of all time, we do not think the stock is cheap now.

A market-leading position with a high level of customer loyalty

In the home improvement retailing industry, Home Depot and Lowe's (LOW) are still the two biggest giants, accounting for nearly 60% of the U.S. market share in the fourth quarter of 2019. Home Depot had the highest foot-traffic share of 34.3%, while Lowe's ranked second with a 24.8% foot-traffic share. HomeGoods and Menards had the third and fourth positions with 8.7% and 7.1% market share, respectively.

Source: Placer.ai

Home Depot currently has more than 2,290 stores throughout the U.S. It serves two types of customers, Do-It-Yourself (DIY) customers and Professional Customers (PRO). DIY customers are mainly homeowners who purchase home improvement products to fix and maintain their homes themselves. PRO customers are professional renovators, general contractors, and property managers.

Because PRO customers buy home improvement products at Home Depot for their jobs, they often visit the stores more frequently and spend much more than other regular retail customers. Although PRO customers account for roughly 3% of the company's total customers, they generate around 40% of the company's total revenue. As a result, Home Depot has focused on servicing the PRO customers at its best. The company helps its customers finance their projects with its private-label credit card (PLCC) products, offering a 365-day return policy and extending payment terms. In the fiscal year 2019, Home Depot has 4.8 million new credit accounts, bringing the number of total active holders to around 16.7 million.

This article was written by

Anh Hoang profile picture
Chief Investment Strategist at Global Hidden Gems Portfolio (https://www.ghginvest.com). Uncover rare-to-find businesses trading at or below Net cash but still profitable around the world.Global Value Investor. 15 years experience in investing and investment management. Co-author of the MOATS (a book 'bout 70 great businesses that Berkshire Hathaway is holding). Passed CFA level 2. My investing focus is deep value, special situations, growth at cheap price, intelligent speculation in significant events.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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