The Home Depot, Inc.HDNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $361.65 per share(market-calibrated)

-1.4%

Upside to Fair Value

Current

$366.92

Pure Model

$357.33

Fair Value

$361.65

Bull Case

$426.61

Bear Case

$291.24

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

4.83%

Calibrated Growth

3.27%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $357.33.

What's Driving This Ratingfor HD

✓

CapEx already efficient

CapEx at 1.95% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects -0.05% revenue growth, fading to 3.00% by Year 10. Revenue reaches $226.9B (vs $164.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $288.48/share (16.8x terminal FCF) while exit multiple gives $426.19/share (30.2x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $366.92, the market implies 4.83% perpetual growth — 183bps above the model's 3.00%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.31% indicates efficient cash generation. FCF reaches $24.5B by Year 10 (10.81% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.04

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.20%

Cost of Debt

Pre-tax Cost of Debt10.14%

Tax Rate23.90%

After-tax Cost of Debt7.72%

Equity Weight (E/V)95.04%

Debt Weight (D/V)4.96%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (95.04% × 9.20%) + (4.96% × 7.72%)

= 9.12%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$164.6B	$178.2B	$193.0B	$206.7B	$226.9B
EBIT	$23.5B	$25.4B	$27.5B	$29.5B	$32.3B
Tax	$5.6B	$6.1B	$6.6B	$7.0B	$7.7B
NOPAT	$17.8B	$19.3B	$20.9B	$22.4B	$24.6B
+ Depreciation	$3.4B	$3.7B	$4.0B	$4.3B	$4.7B
- Capex	$3.2B	$3.5B	$3.8B	$4.0B	$4.4B
- Δ NWC	-$4M	$338M	$327M	$324M	$312M
Free Cash Flow	$18.0B	$19.2B	$20.8B	$22.3B	$24.5B
Discount Factor	0.916	0.770	0.646	0.543	0.418
Present Value	$16.5B	$14.8B	$13.4B	$12.1B	$10.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$24.5B

Terminal Growth Rate3.00%

WACC9.12%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$412.6B

PV of Terminal Value$172.3B

Exit Multiple Method

Year 10 EBITDA$37.0B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$740.1B

PV of Terminal Value$309.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$131.8B

PV of Terminal Value$172.3B

Enterprise Value$304.1B

(-) Net Debt$17.6B

Equity Value$286.5B

Shares Outstanding993M

Price per Share$288.48

Exit Multiple Method

PV of Projected FCFs$131.8B

PV of Terminal Value$309.1B

Enterprise Value$440.8B

(-) Net Debt$17.6B

Equity Value$423.2B

Shares Outstanding993M

Price per Share$426.19

Pure Model Fair Value

$357.33

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
7.12%	$439.01	$453.04	$470.47	$492.71	$522.06
8.12%	$386.18	$395.05	$405.66	$418.57	$434.60
9.12%	$344.43	$350.40	$357.33	$365.50	$375.27
10.12%	$310.17	$314.35	$319.13	$324.62	$331.01
11.12%	$281.30	$284.33	$287.75	$291.60	$296.01

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$291.24

-20.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.31

Base Case

$357.33

-2.6% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.04

Bull Case

$426.61

16.3% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.89

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Cyclical Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.05%

Year 3 Revenue Growth4.19%

Year 5 Revenue Growth3.72%

Year 7 Revenue Growth3.43%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin14.25%

Tax Rate23.90%

Historical Capex / Rev1.95%

NWC / Revenue4.72%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Cyclical sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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