Determine the intrinsic value per share for Home Depot at the end of the fiscal year using a “two-stage” model (use the following information to construct the model):
1. Assume D0 is current annual dividend per share listed in Bloomberg or from a different free source form the web.
- Assume that in “first stage” (lasting 5 years), HD’s dividend per share grows by the “Next 5 years” growth estimate . (Be prepared to justify how would you choose this growth rate…..)
- Assume that HD’s dividend per share is expected to grow by x% per year = Mean Growth rate forever AFTER the five-year “first stage” growth is completed.
- Calculate HD’s cost of equity. Compare it to the cost of equity from Bloomberg or from a different provider you found online. Attach the report you used.
Show formulas, calculations and interpretation. Have a nice table with your assumptions (CAGR using historical growth rates, independent analysts’ estimates, management guidance, most recent growth rate etc- like we did in class). Submit it in electronic format attaching screenshots from Bloomberg screens or from a stick research report where you got the data from.
- Build a table and a chart with the main operating segments for the most recent past year with the following columns: Revenues, % of each segment in Total Revenues, Operating Income, % of each segment in Total Operating Income
- Build a graph with the dividend annual growth rates since 2005 to the present.Add the EPS growth rates to the same chart for the same period of time.
- What is Home Depot’s stock intrinsic value using the Gordon constant growth model?
- What is Home Depot’s stock intrinsic value using a 2 stage growth model? How accurately does the model above value a share of HD stock?
- What was the closing price at the end of the trade day on March 13, 2020?
- What was the closing price at the end of the fiscal year? Attach a chart with daily stock price performance for the past 12 months. On the same chart add the quarterly EPS.
- What are the possible problems with the models? Please comment on the strengths and weaknesses of each valuation approach.
- Did you encounter any difficulties or challenges?
- Take screenshots of the data you used and attach them next to your calculations.
- Would you buy/sell/hold this stock? Why? Why not? Do you trust your results? Why ? Why not?