Our Calculation Of Intrinsic Value: Home Depot

Each week, we run a DCF (Discounted Cash Flow) model on a company from our watchlist. This week’s pick: Home Depot (HD).

Profile

Home Depot is the world’s largest home improvement retailer, serving both do-it-yourself customers and professional contractors across North America.

The company operates a highly scaled retail network supported by e-commerce, supply chain infrastructure, and deep relationships with suppliers and professional customers.

Home Depot’s business model is driven by:

• Ongoing demand for home maintenance, repair, and renovation

• Large-ticket discretionary projects such as kitchens, flooring, and outdoor improvements

• Growing sales to professional contractors through its Pro ecosystem

• Strong operating leverage from scale and efficient inventory management

Home Depot’s competitive advantages include:

• Category leadership in home improvement retail

• Powerful brand recognition and trusted customer relationships

• Massive store footprint with omnichannel fulfillment capabilities

• Scale advantages in sourcing, logistics, and pricing

• Strong cash flow generation with disciplined capital returns

The business also benefits from long-term structural tailwinds including aging housing stock, rising home values, increased renovation activity, and continued demand from professional contractors.

DCF Analysis

Inputs:

• Discount Rate: 8%

• Terminal Growth Rate: 3%

• WACC: 8%

Forecasted Free Cash Flows (in billions USD)

2026: $13.4 → PV: $12.4
2027: $14.2 → PV: $12.2
2028: $15.1 → PV: $12.0
2029: $16.0 → PV: $11.8
2030: $17.0 → PV: $11.6

Total Present Value of FCFs = ~$60.0B

Terminal Value Calculation

Using perpetuity growth model with 2030 FCF = $17.0B:

TV = (17.0 × 1.03) ÷ (0.08 − 0.03)
TV ≈ $350.2B

Present Value of Terminal Value ≈ $238.4B

Enterprise Value

Enterprise Value = $60.0B + $238.4B = $298.4B

Net Debt

From balance sheet:

• Cash & Equivalents: ~$1.4B

• Total Debt: ~$65.4B

Net Debt ≈ $64.0B

Equity Value & Per-Share Value

Equity Value = $298.4B − $64.0B = $234.4B

Shares Outstanding: ~995M

Intrinsic Value per Share ≈ $235–240

Conclusion

DCF Value: ~$236
Current Price: ~$329
Margin of Safety: ~–28%

Home Depot remains a best-in-class retailer with durable competitive advantages, strong returns on capital, and significant free cash flow generation.

Its dominant position in home improvement, growing Pro customer business, and resilient demand tied to repair and renovation activity provide a solid long-term foundation.

At current levels, however, the shares appear meaningfully overvalued relative to conservative DCF assumptions. Future returns may depend more on earnings growth, continued buybacks, and steady dividend compounding than on multiple expansion.