Nudging Up Our Fair Value on Home Depot

While weather provided both a headwind (due to store closures and mix) and tailwind (in terms of demand for products), wide-moat

We view shares as fairly valued, trading at 18 times 2018 earnings, but anticipate that over the near term, valuation will be supported by ongoing strength in the housing market. With elevated existing-homes sales and prices (as well as a still-low interest rates) that help turnover remain inflated, home improvement spending should persist. However, with five- and 10-year average comps of 6% and 2%, respectively, we model more normalized growth into our forecast over the decade ahead, as we expect the economic expansion in housing will slow to some degree. Our 3.5% comp store growth forecast leads to top-line and EPS increases of about 4% and around 9% (which should be bolstered by incremental share repurchases), respectively, over the next 10 years.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.