home depot presentation-anita.ppt final
TRANSCRIPT
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Anita Sayyed
Brandon Fenner
Daniel Krzak
Yuan Zhou
Home Depot Valuation
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AgendaMarket
FutureGrowth potential
ManagementKey assumptions
ForecastSensitivity analysis
Recommendation
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The Introduction
Maturity in the market
Customer Service; Product Authority; and Disciplined Capital Allocation
Incorporated 1978, public in 1981o Bernie Marcus and Arthur Blank
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The Market
Strengths Weaknesses Strong adaptive
leadership Strong brand name Exclusive brand
partnerships High entry costs,
market is dominated
Female customers Housing market Aging stores
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Lowe’s Comparison
Price vs Customer service
Double the market cap
Saleso 83 Billion- Home Depot
o 56 Billion- Lowe’s
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Home Depot’s Future
Customer Service Shopping Experience
Product Authority Innovative Products
Disciplined Capital Allocation Different Strategy
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Growth
Retail Locations ONLINE
o Increased 36.5% International Expansion (Mexico and Canada) Housing Recession
o Controlled expenseso Home Improvement stores
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Management Team
Craig Menear, Chairman, CEO and President
Carol Tomé, Executive VP - Corporate Services & CFO
Matt Carey, Executive VP – CIO
Ted Decker, Executive VP – Merchandising
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Former CEO
Frank Blake, former CEO and ChairmanCEO and Chairman since 2007
Shares are up 127% since Blake took over in 2007
U.S. housing crash Data breach
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Sales Assumptions
Net Sales Growth for FY’s 2015-2019 5.1%, 4.5%, 4.1%, 3.6%, 3.4%
HD underguides and overperformsInterest rates/mortgage rates Open 2-6 new stores per yearUnemployment levelsHousing market and appreciation
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Key Assumptions
Gross profit increases 34.8% to 35.7%
Share repurchases on average $6B per year
Debt increases $17B -$22.4BDividend payout increases $3 to $4.4B
Capital expenditures increase $1.6B to $1.8B
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Forecasted Income Statement FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Sales $87,383 $91,302 $95,071 $98,537 $101,908
Gross Profit
$30,418 $31,965 $33,769 $35,099 $36,402
Operating Profit
$11,592 $12,775 $14,280 $15,449 $16,693
Net Income
$6,755 $7,435 $8,278 $8,961 $9,717
EPS $5.16 $5.88 $6.82 $7.61 $8.49
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WACC
Beta 1.10
Cost of equity capital 8.3%
After-tax cost of debt 2.69%
Weight of debt 0.114
Weight of equity 0.886
WACC 7.70%
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Valuation
Terminal growth rate 2.60%
GDP + Housing Impact
Stock value/share $120
Slightly undervalued to current market trading range of $114-$118
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Sensitivity Analysis
Our Assumptions:
WACC
Rate of growth in terminal period
Sales growth rate
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Sensitivity Analysis
Terminal Growth Rate and WACCHigh Terminal Forecasted
TerminalLow Terminal
High WACC $112.31 $107.64 $103.37
Forecasted WACC
$125.50 $119.73 $114.51
Low WACC $145.42 $137.80 $130.97
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Sensitivity Analysis
Terminal Growth Rate and WACCHigh Terminal Forecasted
TerminalLow Terminal
High WACC $112.31 $107.64 $103.37
Forecasted WACC
$125.50 $119.73 $114.51
Low WACC $145.42 $137.80 $130.97
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Sensitivity Analysis
WACC and SalesHigh Sales Forecasted
SalesLow Sales
High WACC $109.80 $107.64 $105.66
Forecasted WACC
$122.13 $119.73 $117.53
Low WACC $140.58 $137.80 $135.27
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Sensitivity Analysis
WACC and SalesHigh Sales Forecasted
SalesLow Sales
High WACC $109.80 $107.64 $105.66
Forecasted WACC
$122.13 $119.73 $117.53
Low WACC $140.58 $137.80 $135.27
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Sensitivity Analysis
Terminal Growth Rate and SalesHigh Sales Forecasted
SalesLow Sales
High Terminal $128.03 $125.15 $123.19
Forecasted Terminal
$122.15 $119.73 $117.53
Low Terminal $116.83 $114.51 $112.40
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Sensitivity Analysis
Terminal Growth Rate and SalesHigh Sales Forecasted
SalesLow Sales
High Terminal $128.03 $125.15 $123.19
Forecasted Terminal
$122.15 $119.73 $117.53
Low Terminal $116.83 $114.51 $112.40
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Sensitivity Analysis
Realistic Range
Higher and lower sales result in price range of $117 to $122
ROPI valuation $114
The realistic range is $114 to $122
Home Depot’s current trade range $114-$118
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Recommendation: Buy
✓ Increasing sales
✓ Increasing margins
✓ Dividends
✓ Stock buy back programs
✓ Key initiatives
✓ Individual investor: buy and hold
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Questions
?