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The Home Depot Inc HD

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Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Home Improvement Spend Remains Elevated, Bolstering Home Depot Profits; Shares Price Overbuilt

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We plan to raise our $225 per share fair value estimate for wide-moat Home Depot by a high-single-digit rate, after incorporating better-than-expected sales and profit results from the company’s third-quarter print. In the period, Home Depot delivered 10% sales growth, supported by 6% same-store sales (30% two-year stack), which were well ahead of the 4% comp decline we had forecast. And although the gross margin was just 10 basis points ahead of our outlook, at 34.1% (down only around 5 basis points despite higher transportation costs and less favorable mix), the selling, general, and administrative ratio leveraged ahead of our 18% estimate, coming in at 16.8%, representing a 130-basis-point year-over-year decline. Operating expenses benefited from the roll off of COVID-19-related costs and fixed cost leverage. All in, this led to a 15.7% operating margin, a high-water mark for the third quarter, implying a shift away from spending on the home has failed to surface yet.

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Company Profile

Business Description

Home Depot is the world's largest home improvement specialty retailer, operating more than 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 (2020). 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 Oct 31, 2021
Fiscal Year End Jan 30, 2022
Stock Type Cyclical
Employees 504,800

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