What Is The Real Value Of The Home Depot Inc (HD) Using A Simple DCF

As part of a new series, each week we’re going to conduct a DCF on one of the companies in our screens. This week the stock is The Home Depot Inc (HD). We currently have the stock on an Acquirers Multiple of 16.20. The stock is currently priced at $330.55.

Profile

Home Depot is the world’s largest home improvement specialty retailer, operating more than 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico. Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals. The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations business, which has been expanded through the tie-up with HD Supply (2020). Moreover, the addition of the Company Store brought textile exposure to Home Depot’s lineup.

Inputs

• Discount Rate: 7%
• Terminal Growth Rate: 3%

Forecasted Free Cash Flows (FCFs)

Terminal Value

Terminal Value = FCF * (1 + g) / (r – g) = 545.9 billion

Present Value of Terminal Value

PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 389.22 billion

Present Value of Free Cash Flows

Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 74.67 billion

Enterprise Value

Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 463.89 billion

Net Debt

Net Debt = Total Debt – Total Cash = 40.44 billion

Equity Value

Equity Value = Enterprise Value – Net Debt = 423.45 billion

Per-Share DCF Value

Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $419.26

Conclusion

Based on the DCF valuation, Home Depot is currently undervalued. The DCF value of $419.26 per share is significantly higher than the current market price of $330.55. Margin of Safety is 21.16%.

It is important to note that the valuation is based on a number of assumptions, and these assumptions could change in the future. As a result, it is important to do your own research before making an investment decision.