the home depot -...
TRANSCRIPT
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
School of BusinessInvestment Program
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
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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
School of BusinessInvestment Program
Company OverviewThe Home Depot
Data from Home Depot Website
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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
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Data obtained from The Home Depot 2017 Annual Report
Company StrategyThe Home Depot
School of BusinessInvestment Program
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
School of BusinessInvestment Program
Data obtained from The Home Depot 2017 Annual Report
Company StrategyThe Home Depot
School of BusinessInvestment Program
Data obtained from The Home Depot 2017 Annual Report
Company StrategyThe 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
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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
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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
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Corporate GovernanceThe Home Depot
Data obtained from 2018 HD Proxy Report
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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
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Ratio AnalysisThe Home Depot
Charts published by Bloomberg
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Ratio AnalysisThe Home Depot
Data obtained from The Home Depot, Guru Focus and Yahoo Finance
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Competitor Price PerformanceThe Home Depot
Charts published by Bloomberg
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▪ 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
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Chart published by Bloomberg
Financial HighlightsThe Home Depot
School of BusinessInvestment Program
Chart published by Bloomberg
Financial HighlightsThe Home Depot
School of BusinessInvestment Program
Chart published by Bloomberg
Technical AnalysisThe Home Depot
School of BusinessInvestment Program
Chart published by Bloomberg
Technical Analysis The Home Depot
● RSI: 63.637● HD is trading
below the 52 week high
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Chart published by Bloomberg
Technical Analysis The Home Depot
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Valuation OverviewThe Home Depot
Target prices derived by a 2 year estimate, 5 year projection DCF model.
School of BusinessInvestment Program
Target prices derived by a 2 year estimate, 5 year projection DCF model.
Valuation OverviewThe Home Depot
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1
The Home DepotMonte Carlo Simulation
Median Price: $219.39Mean Price: $219.84
Script obtained from Mark Wold (Quant Wizard)
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Data obtained from The Wall Street Journal
Analyst OpinionsThe Home Depot
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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
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Chart published by Bloomberg
Portfolio Analytics and AllocationThe Home Depot
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Portfolio Analytics and AllocationThe Home Depot
School of BusinessInvestment Program
Purchase 45 shares of HD at $211.68
Total investment of $9,525.60
RecommendationThe Home Depot
School of BusinessInvestment Program
Thank you for your time. We would like to invite questions.
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Appendix
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Beneficial Ownership of Common StockThe Home Depot
School of BusinessInvestment Program
Q2 InfographicThe Home Depot