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Non-Tech : Home Depot (HD)
HD 378.35-0.3%Nov 3 9:30 AM EST
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To: Don Earl who wrote (1019)8/25/2002 4:15:39 PM
From: Steve Robinett  Read Replies (1) of 1169
 
--Don

I've already told you my reasons for believing people will pay $45 for HD within a year, i.e., in the current interest rate environment, I calculate HD's free cash flow to be worth roughly $38/share. Eighteen percent growth in earnings gives you $45. Since HD's debt load is low, most of the cash they generate comes out the other end of the cow (so to speak), rather than going to pay debt service. Lowe's for example, is growing faster than HD but generates less cash due to debt service costs.

All of this has nothing whatsoever to do with any comparison of market price with prices in the 1990's, but a comparison between the return on treasuries and the cash returned by HD. If you estimate $1.75 as earnings for the next 12 months--I actually estimate closer to $2 as possible--you get a P/E of about 19, roughly HD's growth rate with no premium for its dominant position in its industry. Sounds like a bargain to me, a blue chip cheap.

BTW, Bill Gates evidently agrees with me. He just spent $36 million on HD stock (http://story.news.yahoo.com/news?tmpl=story&u=/ap/20020821/ap_wo_en_po/us_bill_gates_investments_1), a million shares at $36. His position is somewhat larger than mine--lol.

Best
--Steve
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