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Non-Tech : Eagle Hardware (EAGL) The Next Home Depo
EAGL 1.550-1.3%Jan 21 4:00 PM EST
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To: Rainier who wrote (219)11/6/1997 9:12:00 AM
From: Sunny Jim   of 389
 
Rainier

Thanks for your great analysis. I have, from time to time, crunched numbers on EAGL trying to understand why it sells at such a discount to the others. I have concluded that the main reason that HD sells for such a premium to EAGL is that their pretax margin is 7.9% whereas EAGL's is 4.3%. This probably explains why your net income per store is double comparing HD/EAGL.

<Net Income/Store $2.01M / $1.05M>

Like you, I shop in both stores and agree that EAGL's are much nicer stores. You get much better service at EAGL, so customers that want or need the service go to EAGL. On the other hand, there is something about the HD warehouse format that attracts the construction oriented clientele. They just roll the stuff out of there in truckloads. I don't think that HD will overtake EAGL, or that EAGL will overtake HD. They will coexist with the two different formats for a long time because pricewise, they are pretty even.

If you compare stock price performance of HD to EAGL since June, HD has gone steadily up while EAGL has gone steadily down. The only explanation I can come up with is that it must be investor flight to safety (going for the bigger more proven HD). Hopefully, the disparity is too big now, and investors will move back to EAGL which is now at bargain prices.

Long EAGL, Jim
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