Home Depot Inc.HD

Morningstar Rating

Stock Research and Analysis

by Mike Taggart, CFA

Having sold its professional supply business in 2007 and closed its ancillary retail businesses in early 2009, Home Depot is now solely focused on its orange box stores. This strategic shift has engendered a complete operational rethink, from logistics to merchandising. Read more

Bulls Say

Home Depot's massive scale and efficiency combine to create one of the few wide economic moats in the retail industry, in our opinion.

The company has consistently returned value to its shareholders through cash dividends and share repurchases. The firm's current $12.7 billion share repurchase program is suspended until economic conditions improve.

The firm's Centralized Automated Replenishment inventory ordering system has freed up store associates' time. The ever-improving system now handles about 70% of a store's products.

A new merchandising strategy that differentiates a product's purpose in the store is being rolled out. This strategy allows the firm to set appropriate pricing, depending on the item's role and intent (attracting traffic or capturing profits).

Home Depot's installation business should benefit as baby boomers age and switch from being do-it-yourselfers to do-it-for-me customers. Read more

Bears Say

Home-improvement retailers could continue to struggle if consumer spending in North America fails to stabilize.

Home Depot's IT and supply chain transformation projects are filled with inherent risks. A setback could harm profitability.

Home Depot still has a fair amount of catching up to do to match Lowe's more attractive store environment and superior customer service. Read more

Strategy

For years, Home Depot used retail store expansions and professional supply business acquisitions to fuel growth. That strategy has now shifted dramatically, with Home Depot focused solely on its orange box stores. Read more

Management

Frank Blake, chairman and CEO, is the person responsible for Home Depot's remarkable strategic about-face, trimming the company's portfolio of businesses down to focus solely on the traditional orange box Home Depot stores. Prior to Blake's tenure at the helm, the firm was highly criticized for its empire-building mentality and its lavish executive compensation practices. Read more

Profile

Home Depot is the world's largest home-improvement specialty retailer, operating approximately 2,250 warehouse-format stores throughout the United States, Canada, Mexico, and China. Read more

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