The Home Depot

1
The Home Depot

• December 5th, 2006
• Presented by Greg Allen

2
Company Profile

• The Home Depot operates a home improvement
  retailer in the United States, Canada, and
  Mexico.
• The Home Depot offers a wide assortment of
  merchandise and services for all areas of the
  home. (Kitchen, Bath, Electrical, Hardware, etc.)
• Also operates EXPO Design Center, Home Depot
  Supply, Home Depot Landscape Supply, and Home
  Depot Floor.
• As of September 18, 2006 the company operated
  2,000 Home Depot stores.
• Home Depot, Inc. is the worlds largest home
  improvement retailer and the second largest
  retailer in the United States.

3
The Home Depot Stores

• Each store averages approximately 105,000 sq.
  feet of enclosed space, with approximately 23,000
  additional sq feet outside.
• Sell a wide assortment of building materials,
  home improvement and lawn and garden products and
  provide a number of services.
• Operating strategy
• To offer a broad assortment of high-quality
  merchandise and services at competitive prices
  using knowledgeable, service-orientated personnel
  and strong marketing and credit promotions.
• They service Do-it-Yourselfers, Do-it-for-Me, and
  professional customers.

4
Products

• Sector Services
• Industry Home Improvement Stores
• Most of the products are purchased directly from
  the manufactures which eliminates the middle
  man.
• To complement and enhance their product selection
  they have formed strategic alliances and
  exclusive relationships with selected suppliers.
• Their product development merchants travel
  internationally and identify opportunities to
  purchase items directly for their stores.
• Currently they source products from more than 600
  factories in 35 countries.

5
Products
6
Other Businesses

• Home Depot Supply
• Apex Supply company
• Contractors Warehouse
• Creative Touch Interiors
• Home Depot Supply Stores
• National Waterworks
• White Cap Construction
• William Bros. Lumber Company

7
Delivering Results

• 1 Home Improvement Retailer
• 1 In Customer Preference
• 1 In Location Convenience
• 1 In Purchases
• 3 Appliance Retailer
• Most Admired Specialty Retailer

8
Competitors
LOW Lowe's Companies Inc. Pvt1 Menard, Inc.
(privately held) Pvt2 True Value Company
(privately held) Industry Home Improvement
Stores
9
SWOT Analysis

• Strengths
• Business Model
• Well known brand name
• Extensive product offerings
• Ability to grow
• Weaknesses
• Highly Competitive industry
• Reliance on third party suppliers
• Opportunities
• Expansion into China
• More development in Canada, and Mexico
• Threats
• Rising Costs
• Weather and other conditions
• Reduction in the ability of consumer credit
• An inability to open new stores on schedule
• Decline in U.S. home prices, slowing housing
  turnover

10
Recent News

• December 4th, 2006 Talks about a buy out of the
  company have been squashed.
• November 16th, 2006 Home Depot increases
  dividends 50 for the second time in 2006.
• Increased dividend 450 within the last six
  years.
• November 14th, 2006
• 11.3 increase in sales from 2005 3rd Q.
• Comparable store sales declined 5.1 in 3rd Q.

11
Quantitative Factors
12
Growth Stock Criteria
13
Time Series Analysis
14
Valuation

• SP 12-Mo Target Price 48.00
• SP Strong Buy
• Morning Star Fair Value 44.00
• Merrill Lynch Buy

15
Valuation

• Strong financial Strength A.
• Growth potential in China, Canada, U.S and
  Mexico.
• Strong Business Model for providing best
  experience for consumers.
• Good Management Team.
• Corporate Governance is better than 96.5 of SP
  500 companies and 100 better than retail
  companies.
• Strong Brand Name.
• Lowest P/E Ratio in past 16 years.
• Ability to offset effects of slowing housing
  market by capturing other market shares.

16
Valuation

• P/E Multiple
• 3.38 13.93 47.08 on year target price
• 47.08/1.10 42.80
• FCFE Model
• 2 stage model 58.98
• 3 stage model 105.59
• Intrinsic Value 52.51

17
Recommendation

• Current Price 39.20
• Buy 75 shares of Home Depot Stock
• 2,940
• May change based on percentage needed in service
  sector