What’s Home Depot’s Fair Stock Price Estimate Based On Expected 2019 Earnings?

by Trefis Team
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Home Depot’s (NYSE: HD) fair price estimate based on expected 2019 earnings is $225, according to Trefis estimates. This is line with the current market price of around $225. The Home Depot, Inc. is the world’s largest home improvement retailer based on net sales for fiscal 2018. It has two primary groups of customers, i.e. DIY (Do it yourself) Customers and Professional Customers. Its major competitors are Lowe’s and other home improvement stores. In this note we discuss our stock price valuation for Home Depot. You can look at our interactive dashboard analysis ~ Home Depot Valuation: Cheap or Expensive? ~ for more details.

 

#1. Estimating Home Depot’s Total Revenues:

  • Total Revenues have increased from $94.6 billion in 2016 to $108.2 billion in 2018, and could grow 2.9% to $111.3 Billion in 2019.  Our Interactive Dashboard Analysis, How Does Home Depot Make Money?, Provides An In Depth View Of The Company’s Revenues.

#2. Deriving Home Depot’s Net Income:

 

  • Net Income Margin has improved over the years due to lower cost of sales (as % of revenue) and better operational efficiency. The margin improved from 8.4% in 2016 to 10.3% in 2018. Trefis estimates further improvement to around 10.9% in 2019.
  • Due to better margins and higher revenues Net Income grew from $8 billion in 2016 to $11.1 Billion in 2018, and we expect it to be around $12.1 billion in 2019.

#3. Determining Home Depot’s EPS:

  • EPS has grown from $6.44 in 2016 to $9.78 in 2018, and we estimate it to be $11.04 in 2019.
  • EPS growth from 2018 can be attributed to higher Net Income and lower Shares Outstanding.

#4. Estimating Home Depot’s Share Price:

  • Our Price Estimate of $225 For Home Depot’s Stock is based on our Detailed Valuation Model, and implies a 20.4x P/E Multiple on expected 2019 EPS of $11.04

 

Comparing Home Depot’s Historical P/E Multiple With That of Its Peers: 

  • P/E Multiples are based on Share Price at the end of Q3, and reported (or expected) Adjusted Earnings for the full year

  • Home Depot’s P/E multiple has been comparatively been stable over the years ranging from 20x to 22.5x, while in the last 2 years it has been around 21x
  • Lowe’s meanwhile has seen a very fluctuating trend in P/E multiple over the years ranging from 19.5x to 40.3x. In 2019 it was recorded at 28.1x

 

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