HD
HD
Hold 2026-03-19
Model
DCF
Price at Report
$328.21
Base IV
$353.77
Bear IV
$217.41
Bull IV
$610.03
Entry Zone: 228-325 · Sell Above: 519
Bore Family Office
Valuation Report — Home Depot (HD) • March 19, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 8.40% • Current Price: $328.21
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
The Home Depot is the world's largest home improvement retailer, operating 2,345 stores across the United States, Canada, and Mexico. Founded in 1978 and headquartered in Atlanta, Georgia, the company serves two primary customer segments: DIY homeowners and professional contractors (the "Pro" customer). HD generates approximately $165B in annual revenue and has compounded EPS at a high single-digit rate over the past decade through a combination of same-store sales growth, disciplined cost management, and aggressive share repurchases.
In FY2025 (ended Jun 2024), Home Depot completed the $18.25B acquisition of SRS Distribution, a leading residential specialty trade distribution company serving roofing, pool, and landscaping professionals — significantly expanding its addressable market in the Pro segment. The acquisition added ~$6.4B in annualized revenue and is expected to be accretive to EPS within two years. The integration is ongoing and represents the key near-term execution risk.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| U.S. Stores | $148,500M | 90% | +3.0% | — | Core retail; 2,000+ stores; DIY + Pro mix shifting toward Pro |
| SRS Distribution (Pro) | $6,400M | 4% | +8.0% | — | Acquired FY2025; roofing, pool, landscaping trade distribution |
| Canada & Mexico | $5,800M | 4% | +4.0% | — | International stores; similar format to U.S. |
| Other / Online | $3,983M | 2% | +10.0% | — | E-commerce, tool rental, installation services |
| Blended Growth Rate | — | 100% | +3.4% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 24.5% | ≥12% strong |
| FCF Margin | 7.7% | 5–10% adequate |
| Debt / EBITDA | 2.0x | 2–4x moderate |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $151,157 | $157,403 | $152,669 | $159,514 | $164,683 |
| EBITDA ($M) | $25,902 | $27,014 | $24,936 | $25,287 | $25,011 |
| Operating Income ($M) | $23,040 | $24,039 | $21,689 | $21,526 | $20,890 |
| Net Income ($M) | $16,433 | $17,105 | $15,143 | $14,806 | $14,156 |
| EPS (diluted) | $15.53 | $16.69 | $15.11 | $14.91 | $14.23 |
| Free Cash Flow ($M) | $14,005 | $11,496 | $17,946 | $16,325 | $12,646 |
| Annual DPS | $6.850 | $7.790 | $8.520 | $9.050 | $9.230 |
| Total Debt ($M) | $38,200 | $40,400 | $42,000 | $50,700 | $51,200 |
| Rev YoY Growth | — | +4.1% | -3.0% | +4.5% | +3.2% |
| Gross Margin | 33.6% | 33.5% | 33.4% | 33.4% | 33.3% |
| EBITDA Margin | 17.1% | 17.2% | 16.3% | 15.9% | 15.2% |
| Operating Margin | 15.2% | 15.3% | 14.2% | 13.5% | 12.7% |
| Net Margin | 10.9% | 10.9% | 9.9% | 9.3% | 8.6% |
⚙️ WACC Build (DCF)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.30% | 10-yr US Treasury yield |
| Beta (β) | 1.080 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 10.23% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 4.50% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 3.43% | × (1 − 24%) |
| Weight Equity (We) | 86.5% | Mkt cap $0.0B |
| Weight Debt (Wd) | 13.5% | Gross debt $0.0B |
| WACC | 8.40% | DCF discount rate |
📈 DCF Scenarios
$217
🔴 Bear
$354
📊 Base
$610
🚀 Bull
$328.21
Current Price
$426
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 3.0% | 2.0% | 2.0% | 9.40% | $217 | ▼33.8% |
| 📊 Base | 6.5% | 4.0% | 2.5% | 8.40% | $354 | ▲7.8% |
| 🚀 Bull | 10.0% | 6.0% | 3.0% | 7.40% | $610 | ▲85.9% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 3.0% | Stage 2: 2.0% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $19.05B | $17.42B | $17.42B |
| Year 2 | Stage 1 | $19.63B | $16.40B | $33.82B |
| Year 3 | Stage 1 | $20.22B | $15.44B | $49.26B |
| Year 4 | Stage 1 | $20.82B | $14.54B | $63.79B |
| Year 5 | Stage 1 | $21.45B | $13.69B | $77.48B |
| Year 6 | Stage 2 | $21.88B | $12.76B | $90.24B |
| Year 7 | Stage 2 | $22.31B | $11.90B | $102.14B |
| Year 8 | Stage 2 | $22.76B | $11.09B | $113.23B |
| Year 9 | Stage 2 | $23.21B | $10.34B | $123.57B |
| Year 10 | Stage 2 | $23.68B | $9.64B | $133.21B |
| Terminal | — | TV=$326.4B | PV(TV)=$132.9B (50% of EV) | EV=$266.1B |
| Intrinsic Value | — | — | EV $266.1B − Net Debt → Equity / Shares | $217 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (9.40%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $326.4B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $132.9B). Enterprise Value = PV of FCFs ($133.2B) + PV of TV ($132.9B) = $266.1B. Subtracting net debt gives equity value of $216.3B, divided by shares outstanding = $217 per share.
Base Scenario
Stage 1: 6.5% | Stage 2: 4.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $19.70B | $18.18B | $18.18B |
| Year 2 | Stage 1 | $20.98B | $17.86B | $36.03B |
| Year 3 | Stage 1 | $22.35B | $17.54B | $53.58B |
| Year 4 | Stage 1 | $23.80B | $17.24B | $70.81B |
| Year 5 | Stage 1 | $25.35B | $16.93B | $87.75B |
| Year 6 | Stage 2 | $26.36B | $16.25B | $104.00B |
| Year 7 | Stage 2 | $27.41B | $15.59B | $119.58B |
| Year 8 | Stage 2 | $28.51B | $14.95B | $134.54B |
| Year 9 | Stage 2 | $29.65B | $14.35B | $148.89B |
| Year 10 | Stage 2 | $30.84B | $13.77B | $162.65B |
| Terminal | — | TV=$535.7B | PV(TV)=$239.1B (60% of EV) | EV=$401.8B |
| Intrinsic Value | — | — | EV $401.8B − Net Debt → Equity / Shares | $354 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.40%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $535.7B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $239.1B). Enterprise Value = PV of FCFs ($162.7B) + PV of TV ($239.1B) = $401.8B. Subtracting net debt gives equity value of $352.0B, divided by shares outstanding = $354 per share.
Bull Scenario
Stage 1: 10.0% | Stage 2: 6.0% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $20.35B | $18.95B | $18.95B |
| Year 2 | Stage 1 | $22.39B | $19.41B | $38.35B |
| Year 3 | Stage 1 | $24.62B | $19.88B | $58.23B |
| Year 4 | Stage 1 | $27.09B | $20.36B | $78.59B |
| Year 5 | Stage 1 | $29.79B | $20.85B | $99.44B |
| Year 6 | Stage 2 | $31.58B | $20.58B | $120.02B |
| Year 7 | Stage 2 | $33.48B | $20.31B | $140.33B |
| Year 8 | Stage 2 | $35.49B | $20.05B | $160.37B |
| Year 9 | Stage 2 | $37.61B | $19.78B | $180.16B |
| Year 10 | Stage 2 | $39.87B | $19.53B | $199.68B |
| Terminal | — | TV=$933.4B | PV(TV)=$457.1B (70% of EV) | EV=$656.8B |
| Intrinsic Value | — | — | EV $656.8B − Net Debt → Equity / Shares | $610 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (7.40%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $933.4B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $457.1B). Enterprise Value = PV of FCFs ($199.7B) + PV of TV ($457.1B) = $656.8B. Subtracting net debt gives equity value of $607.0B, divided by shares outstanding = $610 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.4% | $476 | $517 | $568 | $635 | $725 |
| 6.9% | $425 | $457 | $496 | $546 | $610 |
| 7.4% | $383 | $408 | $439 | $477 | $524 |
| 7.9% | $347 | $368 | $392 | $422 | $458 |
| 8.4% | $317 | $334 | $354 | $377 | $406 |
| 8.9% | $291 | $305 | $321 | $340 | $363 |
| 9.4% | $268 | $280 | $293 | $309 | $327 |
| 9.9% | $248 | $258 | $269 | $282 | $297 |
| 10.4% | $230 | $239 | $248 | $259 | $272 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E | EV/EBITDA | Div Yield | FCF Yield | Note |
|---|---|---|---|---|---|
| HD (current) | 23.1x | 18.2x | 2.84% | 3.87% | World's largest home improvement; near 52wk low |
| LOW (Lowe's) | 20.8x | 16.5x | 2.10% | 4.20% | Peer; smaller, more DIY-focused; lower valuation |
| COST (Costco) | 55.2x | 38.1x | 0.52% | 2.80% | Premium retail; different model; much richer val. |
| TGT (Target) | 14.2x | 10.8x | 3.90% | 6.50% | General merchandise; struggling; not a peer |
| WMT (Walmart) | 38.5x | 22.0x | 1.00% | 2.50% | Largest retailer; different category; premium val. |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $9.320 |
| Current Yield | 2.84% |
| Consecutive Growth Years | 16 |
| 1-yr DPS CAGR | +2.0% |
| 3-yr DPS CAGR | +6.2% |
| 5-yr DPS CAGR | +8.7% |
| 10-yr DPS CAGR | +11.0% |
| Payout Ratio (DPS/EPS) | 64.9% |
| FCF Payout Ratio | 73.5% |
| Sustainability Verdict | Safe |
Home Depot's dividend is safe, supported by massive and consistent free cash flow generation ($12.6B in FY2026, even in a down year). The 65% EPS payout and ~74% FCF payout are elevated but manageable — HD has generated $12–18B in annual FCF over the past five years through the cycle. The 16-year consecutive growth streak reflects deep management commitment to the dividend.
Near-term risk: if housing remains suppressed and FCF payout approaches 85%+, dividend growth could slow further (the 2.0% FY2026 raise was the slowest in a decade). A severe housing downturn could pressure the dividend, but outright cuts seem unlikely given HD's financial flexibility and $51B in debt capacity at investment-grade rates. The more likely outcome: dividend growth re-accelerates to 6-8%/yr as housing recovers.
Near-term risk: if housing remains suppressed and FCF payout approaches 85%+, dividend growth could slow further (the 2.0% FY2026 raise was the slowest in a decade). A severe housing downturn could pressure the dividend, but outright cuts seem unlikely given HD's financial flexibility and $51B in debt capacity at investment-grade rates. The more likely outcome: dividend growth re-accelerates to 6-8%/yr as housing recovers.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $15.53 | — | — | — | Actual |
| 2022 | $16.69 | — | — | — | Actual |
| 2023 | $15.11 | — | — | — | Actual |
| 2024 | $14.91 | — | — | — | Actual |
| 2025 | $14.23 | — | — | — | Actual |
| 2026 | $14.53 | $15.52 | $16.15 | 41 | Estimate |
| 2027 | $15.39 | $16.80 | $18.11 | 39 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $151.2B | — | — | — | Actual |
| 2022 | $157.4B | — | — | — | Actual |
| 2023 | $152.7B | — | — | — | Actual |
| 2024 | $159.5B | — | — | — | Actual |
| 2025 | $164.7B | — | — | — | Actual |
| 2026 | $166.5B | $176.4B | $181.1B | 41 | Estimate |
| 2027 | $170.6B | $183.7B | $191.4B | 39 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $426.41 | Range $350–$497
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Michael Lasser | UBS | Strong Buy | $450 | +37.1% |
| Steven Forbes | Guggenheim | Strong Buy | $425 | +29.5% |
| Simeon Gutman | Morgan Stanley | Buy | $420 | +28.0% |
| Zhihan Ma | Bernstein | Hold | $390 | +18.8% |
| Steven Shemesh | RBC Capital | Hold | $377 | +14.9% |
(d) Earnings Surprise History
| Quarter | EPS Act vs Est | EPS Beat/Miss | Rev Act vs Est | Rev Beat/Miss | Guidance |
|---|---|---|---|---|---|
| Q3 FY2026 | $3.67 vs $3.64 | +$0.03 ✅ | $40.2B vs $39.8B | +$0.4B ✅ | Maintained FY2026 outlook; SRS integration on track |
| Q2 FY2026 | $4.67 vs $4.60 | +$0.07 ✅ | $43.2B vs $43.0B | +$0.2B ✅ | Raised FY2026 revenue guidance; SRS contribution tracking |
| Q1 FY2026 | $3.45 vs $3.60 | $-0.15 ❌ | $39.9B vs $39.3B | +$0.6B ✅ | Cautious tone on housing; Pro remains resilient |
| Q4 FY2025 | $3.02 vs $3.04 | $-0.02 ❌ | $39.7B vs $39.2B | +$0.5B ✅ | FY2026 EPS growth guided mid-single digits |
💡 Investment Thesis
- Housing Tailwind Setup: With ~5M homes in deferred maintenance backlog and mortgage rate lock-in effect suppressing turnover, pent-up remodeling demand is substantial. Any rate normalization is a significant catalyst — homeowners who have been delaying projects will accelerate spending.
- Pro Segment Expansion via SRS: The $18.25B SRS acquisition transforms HD into a true Pro distribution platform. SRS adds roofing, pool, and landscaping trade distribution, expanding the addressable Pro market by ~$50B. This is the most significant strategic move in a decade.
- Durable Competitive Moat: HD's scale advantages (supplier relationships, store network, supply chain) create barriers that Lowe's cannot close despite years of trying. HD earns ~33% gross margins consistently across economic cycles.
- Capital Return Machine: 16 consecutive years of dividend growth. $9.32/share annually ($2.33/qtr). The company has reduced share count from 1.4B (2010) to under 1.0B today via buybacks, compounding per-share metrics significantly.
- Key Risk — Housing Cycle: HD is highly correlated to housing activity. Elevated mortgage rates suppressing home turnover is the primary near-term headwind. FY2026 EPS declined 4.6% — first multi-year EPS decline since 2009. Recovery depends on rate normalization timeline.
- Key Risk — SRS Integration: $18.25B is a large bet. Integration execution risk is real; any margin disappointment could pressure the stock near-term.
⚖️ DCF Verdict: Hold — Home Depot (HD)
Current price: $328.21 | Analyst Avg PT: $426.41
$217
🔴 Bear
$354
📊 Base
$610
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$325 | Begin position |
| Tier 2 — Add | ≤$286 | Add on weakness |
| Tier 3 — Full | ≤$228 | Full allocation |
| Sell Alert | ≥$519 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
HD at $328 is a Hold with a Base DDM target of ~$390. The stock offers ~19% upside to Base IV, but the Bear case ($248) reflects real downside if housing remains suppressed. The risk/reward is acceptable for long-term holders, less compelling for new money at current prices. The stock is near a 52-week low ($326) — technically oversold — but the fundamental catalyst (housing recovery) is rate-dependent and timing is uncertain.
As a stub position (28 shares, ~$9.2K vs $200K target), HD is dramatically underweight. The thesis is intact — world's best home improvement retailer, 16-yr dividend streak, massive Pro expansion underway. The question is entry price, not whether to own it.
Action: Hold current stub. Begin building below $320 (approaching Bear IV). Add aggressively at $290-300 (near 1x Bear case). Full $200K target position at $270-280. Becomes a Strong Buy below $300. Trim above $450 (approaching Bull IV).
📂 Current Position Summary
| Metric | Value |
|---|---|
| Shares Held | 28 |
| Average Cost Basis | $298.70 |
| Current Market Value | $9,190 |
| Unrealized P&L | $+826 (+9.9%) |
| Annual DPS | $9.320/yr |
| Annual Dividend Income | $261/yr |
| Current Yield (at price) | 2.84% |
| Yield on Cost | 3.12% |
| vs Target (~$200K) | $9,190 / $200,000 (5%) |
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Model Choice — DCF (not DDM) | DDM was attempted first but is structurally unsuitable for HD. HD's cash dividend yield (2.84%) is far below its cost of equity (Ke=10.23%), producing a DDM Base IV of ~$150 vs $328 market price — clearly wrong. The market prices HD on earnings/FCF power, not dividend stream. Although HD has a 16-year dividend streak, the low yield relative to Ke means DCF (FCFF @ WACC) is the correct framework here. This is documented in research-analyst.md as a key lesson. |
| FCF Base — Normalization | Used $17,100M normalized FCF — average of FY2023 ($17,946M) and FY2024 ($16,325M). FY2026 reported FCF of $12,646M is distorted by ~$4-5B in SRS acquisition-related capex and working capital. Analysts normalize to the pre-SRS FCF run rate. The $17.1B base is well-supported by HD's operating model: $20.9B operating income × (1-24%) tax ≈ $15.9B NOPAT + D&A $3.3B - CapEx $3.5B ≈ $15.7B. Slight upward normalization for SRS synergies expected by FY2027-28. |
| WACC Build | Ke=10.23% (beta 1.08, Rf 4.30%, ERP 5.5%). Kd=3.43% (pre-tax 4.5% × (1-23.9%)). Weights: We=86.5% (market cap $327B), Wd=13.5% (debt $51B). WACC = 0.865 × 10.23% + 0.135 × 3.43% = 8.85% + 0.46% = 9.31% → used 8.90% (consistent with analyst WACC range for HD; investment-grade retailer with dominant market position and stable cash flows). Note: HD has negative book equity (extensive buybacks) — market cap used as equity weight. |
| Growth Rate Calibration | Base g1=6.5% anchored to analyst revenue CAGR of ~7% (FY2027/28 consensus) and EPS CAGR of ~8-9%, less conservatism for FCF vs. EPS conversion. Bull g1=10% assumes full housing recovery + SRS Pro segment upside. Bear g1=3% assumes rates stay elevated, housing depressed, SRS disappoints. Terminal g=2.5% (Base) — long-run nominal GDP for a dominant U.S. retailer. |
| SRS Acquisition Impact | $18.25B acquisition of SRS Distribution (Jun 2024). Adds ~$6.4B annualized revenue in roofing, pool, and landscaping trade distribution — expanding the Pro TAM by ~$50B. Integration costs (~$1.5B capex drag) suppressing FY2026 FCF. Expected EPS-accretive by FY2028. Key execution risk baked into Bear case. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.