Image Source: HomeDepot.com

Profile

The Home Depot (HD) is the world’s largest home improvement retailer, operating a dominant network of warehouse-style stores supported by a highly integrated digital platform. The company serves both do-it-yourself (DIY) consumers and professional contractors (“Pros”), leveraging unmatched scale in sourcing, logistics, private-label brands, and supplier relationships. Home Depot’s size, operational efficiency, and brand strength create durable competitive advantages, while its disciplined capital allocation supports consistent shareholder returns through dividends and buybacks. Although demand is cyclical and tied to housing and renovation activity, HD generates strong and resilient free cash flow across economic cycles.

DCF Analysis

Inputs

• Discount Rate: 10%
• Terminal Growth Rate: 3%
• WACC: 10%

Forecasted Free Cash Flows

2025: $14.5 → PV: $13.2
2026: $15.0 → PV: $12.4
2027: $15.5 → PV: $11.6
2028: $16.0 → PV: $10.9
2029: $16.5 → PV: $10.3

Total Present Value of FCFs = $58.4B

Terminal Value Calculation

Terminal Value Calculation

Using the perpetuity growth model with 2029 FCF = $16.5B:

TV = (16.5 × 1.03) ÷ (0.10 − 0.03) = $242.8B

Present Value of Terminal Value:

PV(TV) = 242.8 ÷ (1.10)^5 = $150.8B

Enterprise Value

Enterprise Value = $58.4B + $150.8B = $209.2B

Net Debt

• Cash & Equivalents: ~$1.7B
• Total Debt: ~$65.4B

Net Debt ≈ $63.7B

Equity Value & Per-Share Value

• Equity Value: $209.2B − $63.7B = $145.5B
• Shares Outstanding: ~0.995B

Intrinsic Value per Share ≈ $146

Conclusion

• DCF Value: ~$146
• Current Price: ~$375
• Margin of Safety: –61%

Home Depot remains a high-quality, cash-generative retail franchise with unmatched scale in home improvement, strong Pro exposure, and best-in-class operating efficiency. Its ability to generate substantial free cash flow through housing cycles supports continued dividends and share repurchases, reinforcing its appeal as a long-term compounder.

However, under a standardized DCF framework using a 10% discount rate and 3% terminal growth, HD’s current market price implies expectations well above conservative intrinsic value. The valuation assumes a sustained reacceleration in housing activity, margin expansion, or capital returns that exceed what is embedded in this model.

For long-term investors, Home Depot continues to represent a durable business with strong competitive advantages and disciplined capital allocation. At today’s valuation, however, the stock offers limited margin of safety, suggesting that future returns are likely to be driven more by business execution than by multiple expansion.

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