HOME DEPOT, INC. (HD): what the price requires
At today's price, HOME DEPOT, INC. (HD) is priced for +6.7% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/HD
Headline
| Field | Value |
|---|---|
| Ticker | HD |
| Company | HOME DEPOT, INC. |
| Current price | $336.65/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 6.9% |
| Operating margin today | 13.1% |
| Margin compression implied | -6.2pp |
| Implied growth | 6.7% |
| Multiple paid | 18x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.2% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.9pp.
Reconcile: at the x-ray's 9.3% required return this reads ~13.6%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.28σ |
| cohort percentile (of 210 peers) | 52 |
| implied end-window share | 1% |
Valuation X-Ray
The price is justified by relative-multiple; asset-based/earnings-power/growth-DCF land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.21x | 5 | expensive |
| Earnings | 2.28x | 4 | expensive |
| Relative | 1.09x | 3 | expensive |
| Growth | 1.59x | 4 | expensive |
Families that justify the price: Relative Families that call it expensive: Asset, Earnings, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.
Per-Model Detail (n=16)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $195.77 | 1.72x | yes | FCF base $14.3B, growth 2% (input: historical growth), terminal g 2.2%, WACC 9.0%, 5yr projection |
| DCF Exit Multiple | Growth | $289.20 | 1.16x | yes | Exit EV/EBITDA: 12.3x / 14.3x / 16.3x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $308.74 | 1.09x | yes | P/E 20x (sector median), scenarios: 16.8x / 20.0x / 23.2x (bear / base = sector held flat / bull), EV/EBITDA 14x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $114.05 | 2.95x | yes | Stage 1: -5% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $152.09 | 2.21x | yes | BV/sh $13.93, ROE (TTM) 101.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $1075.84 | 0.31x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $232.03 | 1.45x | yes | Rev $166.6B, growth 2% (input: historical growth; tapered), Terminal P/S: 1.7x / 2.0x / 2.3x (bear / base = today's held flat / bull, cap 8x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $171.38 | 1.96x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $22.08B × (1−25%) / WACC 9.0% → EPV (no growth) |
| Residual Income | Asset | $256.92 | 1.31x | yes | BV $13.93 + 5yr PV of (ROE (TTM) 101.0% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $66.43 | 5.07x | yes | √(22.5 × EPS $14.08 × BVPS $13.93) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $330.07 | 1.02x | yes | EBITDA $24.31B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $143.78 | 2.34x | yes | FCF $14315.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $138.01 | 2.44x | yes | SBC-adj FCF $13.78B (FCF $14.31B − SBC $0.53B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $11.80 | 28.53x | yes | EPS $14.08 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | $22.70 | 14.83x | yes | BV $13.93 × (ROIC 14.7% / WACC 9.0%) |
| P/Sales Sector | Relative | $250.89 | 1.34x | yes | Revenue $166.59B × sector P/S 1.5x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $152.22 | 2.21x | yes | EPS $14.08 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $56.1b |
| Net debt / NOPAT (after-tax) | 3.39x |
| Net debt / operating income (pre-tax) | 2.55x |
| Interest coverage | 9.1x |
| Share count CAGR (buyback) | -0.9% |
| Burning cash | no |
Bullet Takeaways
- Home Depot is pushing deeper into the professional contractor market through the SRS and GMS acquisitions, which lifted fiscal Q1 2026 net sales 4.8% to $41.8 billion even as same-store comparable sales rose only 0.6%.
- The near-term risk is demand: U.S. comparable sales have now been roughly flat for three straight quarters, the signature of a housing market where high rates keep big-ticket renovation projects on hold.
- Watch the Pro and SRS ramp against the reaffirmed fiscal 2026 guidance of flat-to-2% comps and roughly 12.4% to 12.6% operating margin; the acquisitions are diluting gross margin now and are meant to add growth later.
Bull Case
What a standard model misses about Home Depot is that the return on the capital invested in the business is extraordinary, and ordinary book-value math cannot represent it. The company earns a return on equity north of 100%, a number that looks like a typo but reflects the reality that Home Depot generates enormous profit on a comparatively small book of equity, because decades of buybacks have returned capital rather than hoarding it. A residual-income or excess-return method that anchors on book value undershoots a business whose economics are about cash returned per dollar deployed, not assets parked on a balance sheet. The right lens is the cash machine, and it is humming: trailing free cash flow runs above $14 billion.
The strategic move underneath the numbers is the deliberate shift toward the professional contractor. Home Depot serves two customer groups, and its filing names them plainly: "consumers (including both DIY and DIFM customers) and Pro" customers. The Pro customer spends more, more often, and is stickier, and the SRS and GMS acquisitions are a multi-billion-dollar bet on owning the supply chain that serves roofers, builders, and tradespeople. That is why net sales grew 4.8% to $41.8 billion in the first fiscal quarter of 2026 while same-store comps barely moved: the inorganic Pro expansion is adding a growth engine that the consumer comp line does not capture.
The scale and the capital return are the durable advantages. Home Depot's store base, distribution network, and purchasing power give it cost leadership no regional competitor can match, and it converts that into relentless capital return: the share count has drifted lower even through an acquisition-heavy stretch, and the dividend is a fixture. Management reaffirmed fiscal 2026 guidance for total sales growth of 2.5% to 4.5% and an operating margin around 12.4% to 12.6%, with SRS expected to deliver mid-single-digit organic growth and 40 to 50 new branches opening this year. The bet is a dominant retailer using a soft patch in housing to build out the Pro franchise that powers the next cycle.
Bear Case
The valuation methods do not agree on Home Depot, and the conservative ones carry the warning. Only the peer-multiple lens reaches the price; the asset-value, earnings-power, and growth-oriented cash-flow methods all read the stock as expensive. When the price is defended solely by comparison to other retailers trading at similar multiples, and every method grounded in the company's own cash flows or normalized earnings says it is dear, the relative-multiple support is circular: it holds only as long as the whole sector stays richly valued. The cash-flow methods that capitalize Home Depot's free cash flow at a market rate land well below the current price, which is the honest read of what the business throws off today versus what the market pays for it.
The operating backdrop is what makes that gap uncomfortable. Same-store comparable sales rose just 0.6% in the first fiscal quarter, with U.S. comps up 0.4%, the third consecutive quarter the figure has moved less than half a percent in either direction. Home Depot's demand is tied to housing turnover and big-ticket renovation, both of which freeze when mortgage rates stay high and homeowners sit on low-rate loans rather than move or remodel. The price implies company-wide operating growth around 7.4% a year; a business comping near zero has to lean entirely on the Pro acquisitions and an eventual housing thaw to get there.
Those acquisitions carry their own cost. Gross margin fell 75 basis points in the quarter, primarily because of the GMS deal, since distribution to professional customers is a lower-margin business than selling paint and lumber to a homeowner. Home Depot funded its growth partly with debt, taking $10.0 billion of net long-term debt proceeds in fiscal 2024, and now carries about $56 billion of net debt at roughly 2.7 times operating income. Interest coverage near nine times is comfortable, but the company is adding lower-margin revenue and leverage at the same time it waits for the consumer to return, and the price already assumes the wait ends well.
Valuation
At about $334 (as of June 27, 2026) Home Depot trades near 18 times company-wide operating income, which inverts into an assumption of roughly 7.4% annual operating-profit growth over five years. That pace is within what the company has delivered historically, so the question is durability rather than plausibility: can a retailer comping near zero today sustain mid-single-digit profit growth long enough to earn the multiple. The implied bet sits in the lower half of its peer multiple range, which is why the overall assumption reads as within range rather than stretched.
The method spread is the real signal. The relative-multiple lens, anchored on a sector P/E near 20 times and a sector EV/EBITDA near 14 times, lands right at the price. Every other family reads the stock as expensive: the earnings-power methods that capitalize free cash flow, the growth-oriented discounted cash-flow approaches, and the asset-based methods all sit below the price. The asset-value methods are partly an artifact of Home Depot's tiny book equity against its enormous returns, so they should not be read too literally, but the cash-flow methods are harder to dismiss. The honest framing is that the price is defended by what comparable retailers fetch, not by what Home Depot's own cash generation would independently support, and that support is only as sturdy as the sector's multiple.
Solvency is sound but no longer pristine. Net debt of about $56 billion sits at roughly 2.7 times operating income, with interest coverage near nine times, after the company funded its Pro expansion partly with borrowings. Home Depot is not burning cash, free cash flow comfortably covers the dividend and the debt service, and the share count has edged lower. The balance sheet is built for a steady, cash-generative retailer, and that is what it is, but the leverage taken on for SRS and GMS means the downside cushion is thinner than it was a few years ago. What a buyer underwrites at this price is a dominant operator with a deliberate Pro strategy, financed with more debt and lower-margin revenue, riding out a flat consumer demand environment until housing turnover recovers.
Catalysts
Home Depot's first fiscal quarter of 2026 captured the current tension: net sales rose 4.8% to $41.8 billion, but same-store comparable sales increased only 0.6%, with U.S. comps up 0.4%, the third straight quarter the figure stayed within half a percent of flat. Adjusted earnings per share of $3.43 beat the $3.30 consensus, but gross margin fell 75 basis points to 33%, primarily because of the lower-margin GMS acquisition. The cause behind the soft comps is the housing backdrop: elevated mortgage rates keep homeowners in place and large renovation projects on hold, while the sales growth comes from the acquired professional-distribution businesses rather than the core stores.
Management reaffirmed fiscal 2026 guidance, expecting comparable sales of flat to up 2%, total sales growth of approximately 2.5% to 4.5% including the GMS contribution and tuck-in deals, and operating margin of roughly 12.4% to 12.6%. SRS is expected to deliver mid-single-digit organic sales growth, with about 15 new stores and 40 to 50 new SRS branches planned for the year.
The forward catalysts are the trajectory of the Pro and SRS ramp, whether the GMS integration stabilizes gross margin, and the direction of mortgage rates and housing turnover, the external variable with the most leverage on Home Depot's comparable-sales line.
Peer Cohorts (Per Segment, With Filing Citations)
Primary segment (US/Canada/Mexico retail) (reported)
- LOW (LOWE’S COMPANIES, INC.)
- (no filing in the citation store)
- TSCO (TRACTOR SUPPLY CO /DE/)
- (no filing in the citation store)
- FND (Floor & Decor Holdings, Inc.)
- (no filing in the citation store)
- WSM (WILLIAMS-SONOMA, INC.)
- (no filing in the citation store)
- RH (RH)
- (no filing in the citation store)
- DKS (DICK'S Sporting Goods, Inc.)
- (no filing in the citation store)
Other (SRS non-reportable specialty trade distribution) (reported)
- BLDR (Builders FirstSource, Inc.)
- (no filing in the citation store)
- FAST (FASTENAL CO)
- (no filing in the citation store)
- WCC (WESCO International, Inc.)
- (no filing in the citation store)
- CNM (Core & Main, Inc.)
- (no filing in the citation store)
- SITE (SiteOne Landscape Supply, Inc.)
- (no filing in the citation store)
- DNOW (DNOW INC.)
- (no filing in the citation store)
- GWW (W.W. GRAINGER, INC.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
HD Q1 fiscal 2026 results, May 2026 · HD FY2024 10-K