The Home Depot - sb.cofc.edusb.cofc.edu/academics/specialty-programs/investment-program/photos-pdfs... · School of Business Investment Program Company 1. Home Depot is much more

School of BusinessInvestment Program

Taylor Crawford Performance AnalystTheo Harrison Consumer Discretionary AnalystDaniel Hassett Special Events CoordinatorAshley Markow U.S. Economist

September 20, 2018

The Home Depot


Investment Thesis

Company Overview and History

Company History

Company Strategy

Forward Guidance

Competitive Analysis

Competitor Stock Price Performance

SWOT

Portfolio Analytics and Allocation

Analyst Opinion

Corporate Governance Recommendation

The Home DepotTable of Contents


Company1. Home Depot is much more profitable than Lowe’s

2. Home Depot attracts more “pro” builders and contractors than Lowe’s and operates in more populous areas

3. Recently ranked 38th in the Management Top 250 (3rd in Retail/Wholesale)

4. World’s 2nd largest brick and mortar retailer

Macro 1. Home Depot’s specialty product offering makes them extremely resilient to the “Amazon Effect”

2. Company benefits from increasing number of natural disasters

Investment ThesisThe Home Depot


Company OverviewThe Home Depot

Data from Home Depot Website


Company HistoryThe Home Depot

Data from annual reports and filings

● 1978: Founded by Bernie Marcus and Arthur Blank

● 1979: First two stores opened in Atlanta, GA

● 1994: Entered Canadian market with acquisition of

Aikenhead’s Home Improvement Warehouse

● 2002: Entered Mexican market with acquisition of Del Norte

● 2017: Acquired The Company Store, an online retailer of

textiles and decor products

● 2017: Enhanced tool rental offering through acquisition of

Compact Power


Data obtained from The Home Depot 2017 Annual Report

Company StrategyThe Home Depot




Customer Experience

• Focused on creating better experiences in stores via navigation

• Lockers located in the front of stores for faster in store pickup

• Compact Power Equipment acquisition for better equipment rental experience

• Offering more textiles and decor products as result of customer feedback

Future of the Business

• Focusing on enhancing the “One Home Depot” Experience

• Investing $1.2 billion in supply chain over the next 5 years

• Goal is to create the fastest, most efficient delivery service in home improvement

Creating Value

• Returned $12 billion to shareholders through buybacks and dividends

• By 2020, HD believes sales can reach $120 billion

One Home Depot







Marketing Improvements

• Enhancing both B2B and B2C customer experiences

• Personalization elements for consumer clients being addressed

• Creation of systems that identify and market accordingly to professionals and consumers

Supply Chain

• Have announced that $ 1.2B will be dedicated to streamlining their supply chain

• Goal is to have a same-day/next-day network available to 95% of U.S. population

• Goal is to create the fastest, most efficient delivery service in home improvement

• IRR hurdle is 11%

Digital Experience

• Hiring over 1500 IT employees

• Utilizing blockchain technology to track their products from the factory to the shelf

• Eliminate supply disputes

2019 Investment Plan


Data obtained from The Home Depot 2017 Annual Report and Q2 Financial Report

Forward GuidanceThe Home Depot

Q2 2018 Guidance Updates

• Sales Growth: 7%

• Diluted EPS: 29.2% growth (9.42/shr)

• Comps Growth: 5.3%

• Effective Tax Rate: 10% decline

• $ 6B worth of share repurchases in coming FY


Corporate GovernanceThe Home Depot

Data obtained from HD Company Executives page and Bloomberg

Craig Menear• Chairman, President, and CEO, Nov 2014

• Worked at HD over 20 years• Previously led merchandising, supply chain, operations, sourcing, and marketing

Carol B. Tome• Chief Financial Officer & EVP of Corporate services

• May 2001 - Present

Ann-Marie Campbell• EVP - U.S. Stores• January 2016 - Present• Worked at HD for over 30 years• Started at the company as a cashier


Corporate GovernanceThe Home Depot

Data obtained from 2018 HD Proxy Report


Competitive AnalysisThe Home Depot

● Founded in 1946

● Operates in United States, Mexico, and Canada

● Second largest home improvement retailer

worldwide

● Entered Canadian market in 2007

● Entered Mexican market in 2010

● Operates 2,155 home improvement and

hardware stores

● Caters more toward consumers and DIY markets

than professional contractors

● Has successfully entered the e-commerce and

convenience market


Ratio AnalysisThe Home Depot

Charts published by Bloomberg


Ratio AnalysisThe Home Depot

Data obtained from The Home Depot, Guru Focus and Yahoo Finance


Competitor Price PerformanceThe Home Depot

Charts published by Bloomberg


▪ Largest home improvement retailer in the world

▪ Attracts larger share of pros/contractors

▪ Diverse and unique product portfolio

▪ Continuing to push development and enhance customer

experience

▪ Strong financials

Strengths:• Lack of geographic diversification

• High dependence on macroeconomic factors

• Mature domestic market

Weaknesses:

▪ Increase online presence/sales

▪ Demographics are shifting in favor of new home

starts/buying

▪ Extend into more international markets

Opportunities:• Exposure to U.S. housing market

• Long term threat of Amazon

• Rising labor costs

Threats:

SWOT AnalysisThe Home Depot


Chart published by Bloomberg

Financial HighlightsThe Home Depot



Financial HighlightsThe Home Depot



Technical AnalysisThe Home Depot



Technical Analysis The Home Depot

● RSI: 63.637● HD is trading

below the 52 week high



Technical Analysis The Home Depot


Valuation OverviewThe Home Depot

Target prices derived by a 2 year estimate, 5 year projection DCF model.


Target prices derived by a 2 year estimate, 5 year projection DCF model.

Valuation OverviewThe Home Depot


1

The Home DepotMonte Carlo Simulation

Median Price: $219.39Mean Price: $219.84

Script obtained from Mark Wold (Quant Wizard)


Data obtained from The Wall Street Journal

Analyst OpinionsThe Home Depot


Sector OverviewThe Home Depot

Data obtained from Fidelity

Consumer Discretionary TTM ROE: 23%

Sector benefits from wage growth trends

Capital spending growth has turned positive, suggesting that profit recovery will continue



Portfolio Analytics and AllocationThe Home Depot


Portfolio Analytics and AllocationThe Home Depot


Purchase 45 shares of HD at $211.68

Total investment of $9,525.60

RecommendationThe Home Depot


Thank you for your time. We would like to invite questions.


Appendix


Beneficial Ownership of Common StockThe Home Depot


Q2 InfographicThe Home Depot

Documents

The Home Depot - sb.cofc.edusb.cofc.edu/academics/specialty-programs/investment-program/photos-pdfs... · School of Business Investment Program Company 1. Home Depot is much more