Stock Analysis on Net
Stock Analysis on Net

Home Depot Inc. (NYSE:HD)

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Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Home Depot Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 16.16%
01 FCFF0 14,204
1 FCFF1 16,331 = 14,204 × (1 + 14.97%) 14,058
2 FCFF2 18,659 = 16,331 × (1 + 14.26%) 13,828
3 FCFF3 21,187 = 18,659 × (1 + 13.55%) 13,517
4 FCFF4 23,908 = 21,187 × (1 + 12.84%) 13,131
5 FCFF5 26,807 = 23,908 × (1 + 12.13%) 12,675
5 Terminal value (TV5) 745,449 = 26,807 × (1 + 12.13%) ÷ (16.16% – 12.13%) 352,464
Intrinsic value of Home Depot Inc. capital 419,674
Less: Debt (fair value) 52,677
Intrinsic value of Home Depot Inc. common stock 366,997
 
Intrinsic value of Home Depot Inc. common stock (per share) $368.06
Current share price $343.30

Based on: 10-K (reporting date: 2026-02-01).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Home Depot Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 342,310 0.87 18.19%
Debt (fair value) 52,677 0.13 2.95% = 3.88% × (1 – 24.02%)

Based on: 10-K (reporting date: 2026-02-01).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 997,116,682 × $343.30
= $342,310,156,930.60

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (23.90% + 23.70% + 24.00% + 23.90% + 24.40% + 24.20%) ÷ 6
= 24.02%

WACC = 16.16%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Home Depot Inc., PRAT model

Microsoft Excel
Average Feb 1, 2026 Feb 2, 2025 Jan 28, 2024 Jan 29, 2023 Jan 30, 2022 Jan 31, 2021
Selected Financial Data (US$ in millions)
Interest expense 2,412 2,321 1,943 1,617 1,347 1,347
Net earnings 14,156 14,806 15,143 17,105 16,433 12,866
 
Effective income tax rate (EITR)1 23.90% 23.70% 24.00% 23.90% 24.40% 24.20%
 
Interest expense, after tax2 1,836 1,771 1,477 1,231 1,018 1,021
Add: Cash dividends 9,152 8,929 8,383 7,789 6,985 6,451
Interest expense (after tax) and dividends 10,988 10,700 9,860 9,020 8,003 7,472
 
EBIT(1 – EITR)3 15,992 16,577 16,620 18,336 17,451 13,887
 
Short-term debt 4,464 316 — — 1,035 —
Current installments of long-term debt 4,967 4,582 1,368 1,231 2,447 1,416
Long-term debt, excluding current installments 46,341 48,485 42,743 41,962 36,604 35,822
Stockholders’ equity (deficit) 12,813 6,640 1,044 1,562 (1,696) 3,299
Total capital 68,585 60,023 45,155 44,755 38,390 40,537
Financial Ratios
Retention rate (RR)4 0.31 0.35 0.41 0.51 0.54 0.46
Return on invested capital (ROIC)5 23.32% 27.62% 36.81% 40.97% 45.46% 34.26%
Averages
RR 0.43
ROIC 34.74%
 
FCFF growth rate (g)6 14.97%

Based on: 10-K (reporting date: 2026-02-01), 10-K (reporting date: 2025-02-02), 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31).

1 See details »

2026 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 2,412 × (1 – 23.90%)
= 1,836

3 EBIT(1 – EITR) = Net earnings + Interest expense, after tax
= 14,156 + 1,836
= 15,992

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,992 – 10,988] ÷ 15,992
= 0.31

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,992 ÷ 68,585
= 23.32%

6 g = RR × ROIC
= 0.43 × 34.74%
= 14.97%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (394,987 × 16.16% – 14,204) ÷ (394,987 + 14,204)
= 12.13%

where:

Total capital, fair value0 = current fair value of Home Depot Inc. debt and equity (US$ in millions)
FCFF0 = the last year Home Depot Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Home Depot Inc. capital

FCFF growth rate (g) forecast

Home Depot Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.97%
2 g2 14.26%
3 g3 13.55%
4 g4 12.84%
5 and thereafter g5 12.13%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 14.97% + (12.13% – 14.97%) × (2 – 1) ÷ (5 – 1)
= 14.26%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.97% + (12.13% – 14.97%) × (3 – 1) ÷ (5 – 1)
= 13.55%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.97% + (12.13% – 14.97%) × (4 – 1) ÷ (5 – 1)
= 12.84%