September 20, 2018 Taylor Crawford Performance Analyst Theo Harrison Consumer Discretionary Analyst Daniel Hassett Special Events Coordinator Ashley Markow U.S. Economist
Table of Contents Investment Thesis Competitive Analysis Company Overview and History Competitor Stock Price Performance Company History SWOT Company Strategy Portfolio Analytics and Allocation Forward Guidance Analyst Opinion Corporate Governance Recommendation
Investment Thesis Company 1. 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
Company Overview Data from Home Depot Website
Company History 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 from annual reports and filings
Company Strategy Data obtained from 2017 Annual Report
Company Strategy One Home Depot 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 Data obtained from 2017 Annual Report Creating Value Returned $12 billion to shareholders through buybacks and dividends By 2020, HD believes sales can reach $120 billion 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
Company Strategy Data obtained from 2017 Annual Report
Company Strategy 2019 Investment Plan 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% Data obtained from 2017 Annual Report Digital Experience Marketing Improvements Hiring over 1500 IT employees Utilizing blockchain technology to track their products from the factory to the shelf Enhancing both B2B and B2C customer experiences Personalization elements for consumer clients being addressed Eliminate supply disputes Creation of systems that identify and market accordingly to professionals and consumers
Forward Guidance 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 Data obtained from 2017 Annual Report and Q2 Financial Report
Corporate Governance Craig Menear Chairman, President, and CEO, Nov 2014 Worked at HD over 20 years Previously led merchandising, supply chain, operations, sourcing, and marketing Data obtained from HD Company Executives page and Bloomberg 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 Governance Data obtained from 2018 HD Proxy Report
Competitive Analysis 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 Analysis Charts published by Bloomberg
Ratio Analysis Data obtained from, Guru Focus and Yahoo Finance
Competitor Price Performance Charts published by Bloomberg
SWOT Analysis Strengths: Weaknesses: Largest home improvement retailer in the world Lack of geographic diversification Attracts larger share of pros/contractors High dependence on macroeconomic factors Diverse and unique product portfolio Mature domestic market Continuing to push development and enhance customer experience Strong financials Opportunities: Threats: Increase online presence/sales Exposure to U.S. housing market Demographics are shifting in favor of new home Long term threat of Amazon starts/buying Rising labor costs Extend into more international markets
Financial Highlights Chart published by Bloomberg
Financial Highlights Chart published by Bloomberg
Technical Analysis Chart published by Bloomberg
Technical Analysis RSI: 63.637 HD is trading below the 52 week high Chart published by Bloomberg
Technical Analysis Chart published by Bloomberg
Valuation Overview Target prices derived by a 2 year estimate, 5 year projection DCF model.
Valuation Overview Target prices derived by a 2 year estimate, 5 year projection DCF model.
Monte Carlo Simulation Mean Price: $219.84 Script obtained from Mark Wold (Quant Wizard) Median Price: $219.39 1
Analyst Opinions Data obtained from The Wall Street Journal
Sector Overview Consumer Discretionary TTM ROE: 23% Sector benefits from wage growth trends Capital spending growth has turned positive, suggesting that profit recovery will continue Data obtained from Fidelity
Portfolio Analytics and Allocation Chart published by Bloomberg
Portfolio Analytics and Allocation
Recommendation Purchase 45 shares of HD at $211.68 Total investment of $9,525.60
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Appendix
Beneficial Ownership of Common Stock
Q2 Infographic