Breaking down the 4 major growth drivers for Home Depot's stock and dividend growth. The growth of the overall DIY sector plus market share gains. The demographic trends driving home sales. Household balance sheets have hit new highs and homeowners will use increased home equity to finance remodeling projects. Large contractor lead remodeling projects are rising and Home Depot is a critical supplier to contractors.
The risks are another Robert Nardelli who does not understand the culture of Home Depot becomes CEO and wrecks everything gained since the last housing bubble. With home prices spiking concerns for another housing bubble are rising and if it bursts that will hurt Home Depot. We see several reasons why the 2021 housing market is not likely in a bubble.
We then derive our estimate of fair value for Home Depot's stock using a Return on Invested Capital driven justified P/E ratio and a discounted cash flow model.