Home Depot ($HD) the home improvement retailer is a useful bellwether for the domestic US economy.  $HD is trading near the bottom of the stock’s 52-week range.  So how does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $HD with interactive assumptions

Valuecruncher produces a valuation of US$24.00 for $HD. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 14.7% above the current share price of US$20.93.

Assumptions

• Revenue: Reuters aggregates 17 analysts covering $HD and these analysts have mean estimates of 2009 and 2010 revenues of US$72.4 billion and US$73.0 billion respectively. For our analysis we have used US$72.5 billion in 2009, US$73.0 billion in 2010 and US$75.0 billion in 2011.
• Profitability: We have used an EBITDA margin of 9.5% in 2009 rising to 10.5% in 2011. Reuters has $HD‘s EBITD margin at 10.1% last year and averaging 12.8% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$2.25 billion in 2009 and 2010 then US$2.50 billion per annum moving forward.
• Discount Rate: 9.0%.
• Terminal Growth Rate: 2.5%.

Our analysis incorporates the cash and debt on the $HD balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None