Tuesday, October 18, 2011

Home Depot (HD) 2011 Review

Home Depot (HD) operates a chain of retail building supply/home improvement stores in the US, Canada, Mexico and China.

The company has grown profits and dividends at a 7-20% pace over the past 10 years earning 14%+ return on equity. HD experienced difficulties in the recent economic downturn; however the company has taken steps that should lead to improvement in its profitability.

They are:

(1) altered its in-store focus designed to maximize profitability and to make them simpler, more customer friendly,

(2) the company’s size and dominant market position in a highly fragmented industry allows it to achieve economies of scale in purchasing products and to develop exclusive brands with selective suppliers giving it a competitive advantage,

(3) its global sourcing program provides it with an advantage in pricing,

(4) aggressive cost management,

(5) closing underperforming stores.


(1) it is in a highly competitive industry,

(2) the current high unemployment rate and decreased access to credit has put a damper on consumer discretionary spending,

(3) its international exposure increases the risk of losses from currency fluctuations.

Home Depot is rated A++ by Value Line, carries a 37% debt to equity ratio and its stock yields 2.9%.

Statistical Summary


Stock YieldDividend Growth Rate Payout Ratio # Increases Since 2001
IND1.9 830NA
Debt/EquityROEEPS Down Since 2001 Net MarginValue Line Rating


Note: HD stock made good progress off its March 2009 low, quickly surpassing the down trend off its July 2007 high (red line) and the November 2008 trading high (green line). Long term, HD is in a trading range; the straight blue line is the lower boundary. Until recently, it was in an intermediate term up trend; however, it violated that trend and re-set to intermediate term trading range (purple lines). The wiggly blue line is on balance volume. The Dividend Growth Portfolio owns a full position in HD. The upper boundary of its Buy Value Range is $18; the lower boundary of its Sell Half Range is $56.