The Home Depot Inc HD

Home Depot: Raising Our Fair Value Estimate to $270 After Adding SRS Acquisition to Our Outlook

We are raising our fair value estimate per share for wide-moat Home Depot to $270 from $265 after adding our forecast for SRS into our discounted cash flow model. While Home Depot has yet to update its full-year outlook, we are raising our 2024 sales outlook by roughly $9 billion and our EBITDA by around $500 million, as we expect a roughly 80% contribution in the second quarter and full contributions from SRS in the back half of fiscal 2024 with corresponding integration and transaction expenses. Recall, in 2023, SRS delivered $10 billion in sales and $1.1 billion in EBITDA, indicating an 11% EBITDA margin, which was moderately below Home Depot’s 16% enterprise level EBITDA margin. We’ve added the $18.25 billion purchase price and $10 billion in debt to finance the transaction into our model, which is set to increase debt service costs annually by around $500 million, given the roughly 5% interest rate across the nine pieces of debt issued to facilitate this deal.