As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, The Home Depot, Inc. ().
ProfileThe Home Depot, Inc. operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows. In addition, it provides tool and equipment rental services.
Recent PerformanceOver the past twelve months the share price is up 15.08%.Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 487.60 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 331.85 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 79.10 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 410.95 billionNet DebtNet Debt = Total Debt – Total Cash = 48.48 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 362.47 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $365.39
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $365.39 per share is lower than the current market price of $409.33. The Margin of Safety is -12.02%.
