Skip to Content

The Home Depot Inc HD

Rating as of

Morningstar’s Analysis

Valuation
Currency in USD
Is it the right time to buy or sell?
Find out with Morningstar Premium
Is it the right time to buy or sell?
Find out with Morningstar Premium

1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Wide-Moat Home Depot Comps Normalize, but Profitability Remains Solid; Shares Rich

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan to materially alter our $220 fair value estimate for wide-moat Home Depot and view shares as rich, even after a mid-single-digit post-print decline. Investors focused on the company’s slower same-store sales pace in its second quarter, with 4.5% comp growth down materially from the 31% comp it posted in its first quarter. We had forecast a more severe slowdown (with estimated comp performance of 0%), as the company lapped a healthy 23% figure in the second quarter of 2020, but the return of pro sales (at the expense of DIY) helped lift demand more than anticipated. The gross margin of 33.2% was 60 basis points lower than we expected, but the metric saw 60 basis points of pressure from lumber prices during the period, largely accounting for the change. Operating expenses, however, were 90 basis points better than we expected, at 15.6%, as COVID-19-related costs receded from year-ago levels. All in, this led to an operating margin of 16.1%, 60 basis points ahead of our projection and the highest quarterly profit metric since second-quarter 2018.

Read Full Analysis

Company Profile

Business Description

Home Depot is the world's largest home improvement specialty retailer, operating nearly 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico. Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals. The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations business, which has been expanded through the tie-up with HD Supply. The addition of the Company Store brought textile exposure to Home Depot's lineup.

Contact
2455 Paces Ferry Road
Atlanta, GA, 30339
T +1 770 433-8211
Sector Consumer Cyclical
Industry Home Improvement Retail
Most Recent Earnings Jul 31, 2021
Fiscal Year End Jan 30, 2022
Stock Type Cyclical
Employees 504,800

Related

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.