DCF Studio

    HD · NYQ · Consumer Cyclical

    The Home Depot, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 198.64

    Market price

    USD 299.98

    Implied upside

    -33.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 198.64-33.8%
    Exit multiple
    USD 290.11-3.3%
    Market price
    USD 299.98

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn9bn19bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 167.2bnUSD 169.7bnUSD 172.3bnUSD 174.9bnUSD 177.6bn+1.5%
    EBITUSD 23.3bnUSD 23.6bnUSD 24.0bnUSD 24.3bnUSD 24.7bn+1.5%
    NOPATUSD 18.4bnUSD 18.7bnUSD 18.9bnUSD 19.2bnUSD 19.5bn+1.5%
    Add depreciation & amortisationUSD 3.7bnUSD 3.8bnUSD 3.8bnUSD 3.9bnUSD 3.9bn+1.5%
    Less capital expenditureUSD -3.6bnUSD -3.6bnUSD -3.7bnUSD -3.7bnUSD -3.8bn+1.5%
    Less increase in working capitalUSD -1.1bnUSD -1.1bnUSD -1.1bnUSD -1.2bnUSD -1.2bn+1.5%
    Free cashflow to firmUSD 17.4bnUSD 17.7bnUSD 18.0bnUSD 18.2bnUSD 18.5bn+1.5%
    Discount factor0.95700.87650.80270.73520.6733-
    Present valueUSD 16.7bnUSD 15.5bnUSD 14.4bnUSD 13.4bnUSD 12.5bn-7.0%
    Present Value Of The ForecastUSD 72.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.970Reported 0.955, pulled toward 1.0 (Blume)
    Cost of equity10.33%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 299.3bn82.1% of capital
    Total debtUSD 65.3bn17.9% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.19%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 198.64

    72% of EV

    Forecast FCFF, final year
    USD 18.5bn
    Capex at depreciation, working capital in reinvestment
    USD 19.8bn
    Less reinvestment at g/ROIC (7.5% of NOPAT)
    USD -1.5bn
    Capitalised
    USD 18.3bn
    ROIC (reported)
    33.1%
    Terminal value, undiscounted
    USD 280.9bn
    Terminal value, discounted
    USD 189.1bn
    Enterprise value
    USD 261.6bn
    Less net debt
    USD 64.0bn
    Equity value
    USD 197.6bn

    Exit at 14.5x EBITDA

    Value per shareUSD 290.11

    79% of EV

    Terminal value, undiscounted
    USD 416.1bn
    Terminal value, discounted
    USD 280.2bn
    Enterprise value
    USD 352.6bn
    Less net debt
    USD 64.0bn
    Equity value
    USD 288.7bn

    Spread between methods: 37%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.19%260.19281.15306.52337.91377.74
    8.19%212.75226.72243.11262.62286.24
    9.19%177.64187.43198.64211.63226.87
    10.19%150.63157.73165.73174.81185.22
    11.19%129.19134.49140.38146.96154.38

    Outlined: this model. Green text: above today's price of 299.98. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year1.5%11.5%+10.0pp
    EBIT margin13.9%19.3%+5.3pp
    Discount rate9.2%7.3%-1.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.