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Non-Tech : Home Depot (HD) -- Ignore unavailable to you. Want to Upgrade?

To: Ausdauer who wrote (962)	7/21/2002 1:16:14 PM
From: Don Earl	Read Replies (1) \| Respond to of 1169

<<<Why is their debt rating so good?...Is Fitch reliable?>>> I hardly think Home Depot is on the verge of bankruptcy and if they were to close their doors tomorrow, the face value of the notes is probably collectable. At the same time, I do think the stock is over valued by a long shot, and the Fitch comments look more like hype than anything resembling in depth analysis. 20% of Home Depot's properties are financed by off balance sheet debt. Lease obligations are debt, and if the company found themselves in need of closing some of their outlets, the cost to buy out those leases would amount to a lot of money. Accounts payable have increased from around 20 days outstanding to around 40. That debt totals around $3 billion and must be serviced with current cash. Going by the deferred tax liability of $327 million for 2001 and a tax rate of 38.6%, Home Depot reported $847 million more in pre tax income to Wall Street than they did to Uncle Sam. The bottom line is GAAP allows companies to look like they have less debt, and more assets and earnings than the real world condition of the business. I probably read an average of 2 10Q's and 1 10K per week while looking for potential investments. The sole purpose of that time investment is to find places where GAAP has skewed the numbers I find in profiles of screens I run. There is NOTHING in the S&P 500 I would consider holding long right now. While there is usually enough disclosure to make a guess along the lines of "better" or "worse", the amount of information needed to place an accurate dollar amount on all the facts just plain isn't there. IMO the amount of risk involved in holding HD long has not been factored into the stock price at any level above $10. The Dow has formed a massive head and shoulders pattern where the right shoulder is also a head and shoulders pattern. Friday's move broke through the neck line and is early confirmation of the reversal. I expect we'll see the Dow below 6000 within 12 months. In the current market environment, a full blown crash wouldn't surprise me a bit. Economic conditions support the pattern in the charts. Unemployment at 6%, record default rates on credit card debt, plus record personal bankruptcy filings. Most investors are starting to understand that GAAP doesn't have anything to do with a company making money. The dollar is under severe pressure and the Fed is going to have to raise rates to defend it. Bush seems to feel the same way about Arabs that Hitler felt about Jews, and can hardly wait to drop multi billion dollar bombs on them. Things are a mess. In several more years when we get closer to a market bottom I might get a warm fuzzy feeling about buying stock for the long haul, but for now I'm holding cash and picking up a few puts here and there.