Nomura Securities Maintains a 'Neutral' on Home Depot (HD); Comps of 7% Are Built In

February 8, 2012 11:32 AM EST
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Price: $135.01 -0.84%

Rating Summary:
    14 Buy, 13 Hold, 1 Sell

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    Up: 22 | Down: 34 | New: 34
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Nomura Securities maintains a 'Neutral' on Home Depot (NYSE: HD) price target of $38.00.

Analyst, Aram Rubinson, said, "The market has recently begun to revalue companies with leverage to an improving economy. That sentiment has been a particular boon to housing-related stocks, including builders, suppliers and retailers. Home Depot has been ascribed a $79B enterprise value. We presume a secular multiple of 7-8x EBITDA. Dividing $79B by 7.5 suggests the market is paying for EBITDA of $10.4B. Our 2013 forecast is $8.9B (Street is $9.2B). If FCF continues to represent 50% of EBITDA, that multiple implies a 7% FCF yield. If HD were indeed priced to deliver $10.4B of EBITDA at 13% margins, it suggests the market is expecting sales to reach $80B over the next couple of years. To get there by 2013 would mean the share price is baking in annual comps of 7% (14% growth over two years). The Street consensus is projecting comps of only 3%. We are projecting comps of 2%. We are not agreeing nor disagreeing with the market’s view. Our task, however, is to find investments where growth is likely to outpace expectations implied by the share price. HD does not fit that bill."

For an analyst ratings summary and ratings history on Home Depot click here. For more ratings news on Home Depot click here.

Shares of Home Depot closed at $45.46 yesterday.

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