This is an analysis completed by The Dividend Guy. It is not to be used as investment advice or a recommendation to buy, hold, or sell any stocks discussed. Please ensure you complete your own analysis.
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I have been a shareholder of The Home Depot since 2004 when I purchased my initial shares at around $35. The share price has dropped since then as the company had some difficulties with revenue and EPS growth as well as the previous CEO being absolutely dreadful at working with shareholders. I have been patient with HD primarily because of the very strong dividend increases the company continues to put forward. Here is the results of my overall analysis of the company
The Company: The Home Depot (HD-NYSE)
Home Depot is the one of world’s largest home improvement retailer. The company offers a level of service unprecedented among warehouse-style retailers. Home Depot stores cater to do-it-yourselfers, as well as home improvement, construction and building maintenance professionals. The Home Depot currently operates in the USA, Canada, Chile, Puerto Rico, and Argentina. The company also operates EXPO Design Centers across the U.S. and Villager’s Hardware in New Jersey.
| Yes | |
| Yes |
THE FUNDAMENTALS
Revenue
Click to EnlargeRevenue Scoring
| Criteria | Scoring |
| Consistenly Up with No Down Years | 1.0 |
| Up Trend with Less Than 2 Down Years | 0.5 |
| Choppy with Greater Than 2 Down Years | 0.0 |
| My Revenue Score | 0.5 |
Earnings Per Share
Click to EnlargeEarnings Per Share Scoring
| Criteria | Scoring |
| Consistenly Up with No Down Years | 1.0 |
| Up Trend with Less Than 2 Down Years | 0.5 |
| Choppy with Greater Than 2 Down Years | 0.0 |
| My EPS Score | 0.5 |
TOTAL FUNDAMENTALS SCORE: 1.0
THE RATIOS
Return on Equity
Click to EnlargeReturn on Equity Scoring
| Criteria | Scoring |
| Above 15% for Last 5 Years | 1.0 |
| At Least One Year Below 15% in Last 5 Years | 0.0 |
| My ROE Score | 1.0 |
Other Ratios
| Ratio | Criteria | Value | Score (Pass=1 / Fail = 0) |
| Debt to Equity | Less Than 0.50 | 0.71 | 1.0 |
| Payout Ratio | Less Than 60% | 38% | 1.0 |
| Credit Rating | BBB+ | BBB+ | 1.0 |
| Total Ratio Score | 3.0 |
TOTAL RATIOS SCORE: 4.0
DIVIDEND DATA
Annual Dividends
Click to EnlargeDividend Scoring
| Criteria | Scoring |
| 25+ Years of Dividend Growth | 1.0 |
| 10+ Years of Dividend Growth | 1.0 |
| Less Than 10 Years of Dividend Growth | 0.0 |
| My Dividend Growth Score | 2.0 |
TOTAL DIVIDEND GROWTH SCORE: 2.0
STOCK VALUATION
| Valuation Metric | Criteria | Value | Score (Pass=1 / Fail = 0) |
| Dividend Yield | Cur Yld Greater Than 10 Yr Avg Yld | 1.0% | 1.0 |
| Div Yld Compared to SPY Div Yld | Cur Yld Greater Than SPY Yld | 3.6% | 1.0 |
| P/E Ratio | Cur P/E Less Than 10 Yr Avg P/E | 27.4 | 1.0 |
| Relative P/E | Relative P/E Less Than 1.0 | 0.39 | 1.0 |
| Price to Sales | Less Than 1.5 | 0.56 | 1.0 |
| Total Ratio Score | 5.0 |
Canadian Shareowner’s Association Stock Selection Guide Software Buy Price
| Buy Zone |
Maybe Zone |
Sell Zone |
Current Price | Rating | Scoring (Buy=1.0, Other=0.0) |
| 1.0 |
TOTAL STOCK VALUATION SCORE: 6.0
SUMMARY
Points Earned:
13 out of 14
The stock is rated HIGH with 13 points earned through my analysis of the stock. The valuation on a historical basis suggests this stock is very much underpriced. However, this analysis is primarily quantitative and some qualitative things about the company must be considered. First, Home Depot is a cyclical business and reacts to what the housing and building markets do. Given the terrible performance in these areas, it is no wonder that both revenue and earnings are way down for 2008. Before pulling the trigger on a buy, I would want to see some sort of recovery in these metrics. It is not all about price – it is value in the context of a strong business.
| Rating | Points Required |
| High | 11+ points |
| Medium | 8-10 points |
| Low | < 8 points |
Reminder: This is an analysis completed by The Dividend Guy. It is not to be used as investment advice or a recommendation to buy, hold, or sell any stocks discussed. Please ensure you complete your own analysis.
The Dividend Guy owns shares in HD