Home Depot (HD) Last Update 12/19/20
% of Stock Price
Gross Profits
Free Cash Flow
Home Depot
Home Depot
Net Debt
6.2% $19
Trefis Price
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TREFIS Analysis

Trefis Report
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Potential upside & downside to trefis price

Home Depot Company


  1. Home Depot constitutes 100% of the Trefis price estimate for Home Depot's stock.


  1. HD Continues To See Strong Surge in Sales in Q3 As Well
The Home Depot sales grew a stellar 23% year-over-year to $34 billion in Q3. In addition, its profit surged 26% y-o-y to $3.18 per share. The earnings per share bump reflects the company's buyback, with the company buying back another $791 million so far this fiscal year. Home Depot's U.S. same-store sales soared 24% in the quarter as consumers visited the retailer more and spent more money. Average purchases rose 10.0% compared with the same time last year to $72.98, while sales per square foot were up 23.1%.

  1. Higher Costs Accrued
While the pandemic is boosting sales for Home Depot, it’s also raising costs. Home Depot compensated its employees generously for their work during risky conditions. The company granted additional paid time off to all hourly workers with even more paid time off for those over 65 or at-risk. The company plans to invest ~$1B in annualized permanent compensation enhancements for frontline, hourly associates.

  1. Home Depot's online sales continue to propel overall growth
Home Depot has made a concerted effort to focus on its integrated retail strategy, which seamlessly connects online and offline channels, making its stores more efficient. This has resulted in improved revenues and profitability, with the online space being a key driver of the impressive growth Home Depot has witnessed in recent times. In Q3 2020, sales leveraging digital platforms increased by approximately 80% versus the third quarter last year, and approximately 60% of online orders were fulfilled through a store. The penetration was 13% to the business. The sales, that translates to nearly $2 billion of sales growth in the quarter for its online business. Moreover, in the digital space, the typical transaction ticket size is three times that in a store. By focusing on an integrated channel strategy, Home Depot has been able to increase revenues per square foot, rather than generating revenues from the new square footage. This has ensured that its existing store network is being effectively used to drive revenues


Home Depot EBITDA Margin: From 2013-2018, Home Depot improved margins to about 18.5% by streamlining its operations, supply chain, and cutting down heavily on its SG&A expenses. Margins were also aided due to the substantial growth in same-store sales. Going forward, we expect the margins to continue to slightly increase to reach the 19.6% mark over the Trefis forecast period, with further operating leverage as comps improve. However, if the comps grow only modestly, and there is limited or no operating leverage, the margins would remain steady, causing a 5% downside to our current price estimate. On the other hand, if the housing market and home improvement industry continues to strengthen, and outpace previously forecast growth estimates, and comps improve better than expected, resulting in the margins reaching 20.6%, there could be an over 5% upside to our current price estimate.


Home Depot is the world’s largest retailer of home improvement products. Home Depot has grown to 2,287 stores spanning across the U.S., Canada, and Mexico. It offers a wide range of home improvement products and installation services to individual home owners as well as professional builders. In addition to the physical stores, consumers can buy these products through the company’s dedicated website. Home Depot has deep penetration in the U.S., Canada, and Mexico.

Home Depot's business is vulnerable to the housing market, and the housing slowdown has widely affected its sales. In fact, Home Depot had to close down its EXPO and HD supply businesses as their sales were badly impacted during the housing market downturn, making these businesses highly unprofitable.


Consistently outpacing Lowe's in terms of comps

Home Depot and Lowe's are the number one and two home improvement retailers in the U.S. In 2013, Home Depot outpaced Lowe's in terms of same store sales growth with better pricing. In 2014, sales growth was recorded at 4.3% for Lowe's and 5.3% for Home Depot. In 2015, while Home Depot's comps grew 5.6%, that of Lowe's grew only 4.8%. Home Depot bucked the trend of declining sales for retailers in early 2016 on higher consumer spending on home improvement. The company comfortably beat Lowe's comps in FY 2017 and FY 2018, given the guidance provided by the two companies for 2019, we expect the trend to continue.

Home Depot has been stealing valuable market share from arch-rival Lowe's due to better pricing models. In late 2011, Lowe's had decided to move away from promotions to everyday low prices to establish itself as the retailer offering the most competitive prices. However, Lowe's sales continue to struggle more than they already would have in a depressed housing market as customers continued to seek discounts, particularly for discretionary and big-ticket purchases. Home Depot has been grabbing market share from Lowe's due to better pricing models.

Following the recession, Home Depot focused on cost-cutting and improving customer service, whereas Lowe's opted for promotional sales and kept opening new stores, which produced diminishing returns. Since mid-2010, Home Depot's quarterly comparable-sales-growth rates have consistently outpaced Lowe's.

Emerging competition from online retailers

Online retail has been an emerging threat to the market share of brick and mortar home improvement retailers like Home Depot and Lowe's. For this reason both companies have made significant investments in online strategies, including small acquisitions and improvements in the web experience for their customers.

Improving same store sales could provide operating leverage

As a result of the gradual market recovery, Home Depot's same store sales growth (comps) has gradually improved from 2.9% in 2010 to 6.8% in 2017. This figure declined slightly in 2018 to 5.4% due to tougher y-o-y comparison and unfavorable weather conditions. Further, this expected to increase by 5% in 2019. This helped Home Depot improve its margins through operating expense leverage during 2010-2018. Going forward, we expect comps to continue to improve, as sales rise. This should bring in further operating expense leverage, thereby pushing up margins.

Home Depot's supply chain improvements

Home Depot has been focusing on supply-chain improvements through its central distribution system. We expect overall margins to further improve as the company continues its supply-chain improvements. Rapid Deployment Centers (RDC) aim to aggregate product needs for multiple stores to a single purchase order, and then rapidly allocate and deploy inventory to individual stores upon arrival at the RDC. This move aims to simplify the ordering process and improve inventory management. Home Depot has 18 fully mechanized RDCs in the U.S.

Pro customer activity will drive home improvement industry growth in the near future

The pro segment is estimated at $120 billion a year, nearly as large as the do-it-yourself segment. A breakdown of Home Depot's comparable sales growth in the last few quarters shows a broader increase in the average ticket size as compared to a customer traffic increase. Transactions of $1000 or more have grown by high single-digit or double-digit percentages in the last few quarters. Pro sales continue to grow disproportionately faster than Home Depot's average, boosting its top line and leading to a market-beating growth in categories such as plywood, fencing, and industrial lighting.

Shift in consumer preferences will impact the traditional range of home improvement products

A survey from NRHA suggests a change in the buying patterns among U.S. home improvement consumers. People are no longer only loyal to products made in the U.S. Consumer demand is driven more by price and quality. Consumers may find foreign products, which may be better suited to their needs, and more appealing than products made in the U.S. Another observable trend is the shift in consumers toward buying green or eco-friendly products, such as water-saving flushes and electricity-saving appliances.