The Home Depot

Home Depot is the largest home-improvement retailer in the world: about 2,300 orange warehouses selling timber, tools, paint, plumbing, appliances and garden supplies to two kinds of customer — the homeowner doing it themselves, and the professional contractor doing it for them. In the fiscal year to 1 February 2026 it sold $164.7 billion of goods and earned $14.2 billion. It is worth about $292 billion.

Its advantages are those of a category killer: the widest range at the lowest cost, a supply chain that can put a pallet of drywall on a building site by morning, and, in the United States, a market it shares mainly with one rival. The strategy of the last two years has been to go deeper into the professional customer, who buys more, more often, and less cyclically than the weekend DIYer. To do that it bought SRS Distribution in 2024 for $18.25 billion (roofing, landscaping, pool supplies) and GMS in September 2025 for $5.1 billion (drywall, ceilings, steel framing).

What it cannot control is the housing market. People spend most on their homes when they buy, sell or move — and with mortgage rates near 7%, most homeowners sitting on cheap old mortgages are not moving.

Earnings peaked in fiscal 2022 at $16.69 a share, as the pandemic sent Americans into their gardens and garages and cheap mortgages kept houses changing hands. Then rates rose, turnover collapsed, and earnings slipped three years running to $14.23. Analysts expect a modest recovery — $15.01 this year, $17.31 by fiscal 2028 — but that assumes the door opens.

It has not opened yet. The 30-year mortgage rate was about 7.0% in the week to 24 September, having risen this year alongside the oil shock from the war in the Gulf. Existing-home sales fell in August to an annual rate of 3.98 million, the lowest in fourteen months. When management spoke in August, the word the press reached for was "frozen".

The second quarter showed the pattern precisely. Sales grew 5.7%, but most of that was acquisitions. Comparable sales grew 1.7% (US 1.3%): the average ticket rose 2.8% while the number of transactions fell 1.0%. The finance chief said customers "continued to engage in smaller projects". Operating margin was 14.3% (14.7% adjusted), and management reaffirmed guidance for the year: comparable sales flat to +2% and earnings per share flat to +4%.

And the cash changed direction. From fiscal 2021 to 2023 Home Depot returned its surplus to owners through large buybacks. Since early 2024 it has bought back almost nothing, spending the money — and borrowing more — on SRS and GMS instead. Debt (including leases) rose from $52bn to $65bn; net debt is about 2.5 times EBITDA. The dividend kept rising, but by just 1.3% in February, after 2.2% in 2025 and 7.7% in 2024. A company that has stopped buying its own shares at depressed prices, and slowed its dividend to a crawl, is telling you where its priorities lie for now: paying down the debt from its Pro acquisitions.

Home Depot's moat is scale — in purchasing, in logistics, in store density — and a market structure in which one rival shares most of the national big-box business. A new entrant would need hundreds of vast stores and a distribution network before it could match Home Depot's prices, and online sellers struggle with goods that are heavy, bulky and needed today. The returns show it: about 19% on invested capital, even in a housing slump.

The Pro strategy is an attempt to widen that moat. Contractors value reliability, credit, delivery to the site and a single supplier for the whole job; SRS and GMS bring specialist distribution networks that would take a decade to build. The risk is that it is also a move into lower-margin distribution businesses, bought with debt at the top of a cycle. We score the moat 8.

Lead independent director Greg Brenneman chairs the board while Mr Decker is away. The interim arrangement is sensible and the bench is deep; we wish Mr Decker a full recovery. For an owner, it is one more reason to buy gradually: a strategy built on large acquisitions is being run, for now, without its author at the top.

Ownership is broad and institutional, led by the index funds. Insider activity is small: a few executives and directors sold modest amounts between $306 and $337 in late August and early September, and several had shares withheld for tax on vesting awards at about $300.

Home Depot pays $2.33 a quarter, $9.32 a year — a 3.2% yield, high for this company because the price has fallen. It has paid a dividend every quarter for decades, but the rate of increase has collapsed: 7.7% in 2024, 2.2% in 2025, 1.3% in 2026.

Is it safe? Yes. It takes about 62% of this year's expected earnings and about 62% of trailing free cash flow of $15.1bn. The slowdown is a choice, not a strain: management is using the rest of the cash to pay down acquisition debt instead of buying back shares or raising the dividend faster. When the debt is back to target and the housing market thaws, we would expect faster increases to resume — but an owner buying for income today should expect little dividend growth for a year or two.

What does $293 assume? Roughly that earnings recover slowly to the $15–17 analysts expect by fiscal 2028 and the multiple stays near 19. If housing thaws sooner — rates in the low sixes, turnover back above 4.5 million — both could rise together, and the Street's $379 becomes reachable. If rates stay near 7% for years, the earnings may stall near $15 and the owner collects a 3.2% yield with little growth. The asymmetry favours the patient buyer; the timing does not favour the impatient one.