It’s Time To Shop For Home Depot (NYSE:HD) Again

Home Depot Buys More Growth

Home Depot (NYSE:HD) has been a pandemic-winner from the get-go and much of the revenue gains are expected to stick. If you are wondering if Home Depot is still a buy let me assure you that it is. The company is not only still growing on an organic and expansion basis but it is investing in growth as well. The company recently opted to purchase, or repurchase, HD Supply Holdings (NYSE:HDS) instead of returning capital to shareholders. The question to ask now is when to buy HD and the right time is getting very, very close.

I am sure that when Home Depot sold HD Supply all those years ago no one thought it would repurchase the company at any time in the future. The original decision was based on liquidity and balance-sheet improvements that have, ironically, helped put Home Depot in the position to snatch it back up again. In the perspective of Home Depot, a company looking to buy some growth, what better target than a previously owned segment that is doing great in its own right?

HD Supply Holdings Grows YOY

HD Supply Holdings didn’t have a robust quarter but it did produce what so many others have failed to do; it produced some YOY growth. The company is an industrial supply company servicing North America and saw its revenue grow 0.3% to $827.5 million. Revenue fell short of consensus but there is a mitigating factor. The company sold off the Construction & Industrial segment which took a toll on gross revenue.

Moving down to the bottom line, the company delivered a stunning $10.06 in GAAP EPS for the quarter but once again this figure is impacted by the Construction & Industrial segment sale. On an adjusted basis, EPS of 40.47 is in-line with the consensus. Looking forward, the company is projecting positive sentiment if not actual guidance. The preliminary sales figures for November are up 2.9% on a comparable basis.

What this all means for Home Depot is simple. The company can add about $4.50 billion in annual revenue while capitalizing on business synergies to boost profitability at both brands. In terms of Home Depot revenue, this worth at least 3.5% in annual growth on top of the mid-single to low-double-digit revenue and earnings growth we are already expecting. And HD Supply Holdings is relatively unencumbered. The company has lots of cash and carries only a modest level of debt. What debt there was has been reduced further using the proceeds from the segment sale.

Home Depot Buys HD Supply In All-Cash Deal

Home Depot agreed to buy HD Supply in what amounts to an all-cash deal for the company’s outstanding shares. The deal values HD Supply at $56, any shares not acquired pre-closing will automatically tender upon the closing of the deal. Closing is expected before the end of Home Depot’s 4th quarter ending January 31st, 2021. Based on Home Depot’s balance sheet it looks like the company has ample cash and liquidity to do the deal without outside help.

"The Board and I believe the strategic acquisition by The Home Depot, Inc. will create significant benefits for our customers, associates, and shareholders,” stated Joe DeAngelo, Chairman and CEO of HD Supply. “We look forward to working together to deliver the safest, most dependable and innovative customer experience to the living space maintenance professional."

The Technical Outlook: Home Depot Retreats To Support, Get Ready To Buy

Shares of Home Depot have drifted sideways and downward in the weeks since the announcement and the time to buy is approaching. The stock is trading right at a major support level where I expect the buyers to start scooping it up. The indicators are still bearish so it is possible this level will be tested. If price action falls below $260 it will likely trigger a massive round of buying. Regardless, the time to buy is when the market confirms support at this level. If it doesn’t there may be a chance to get in lower than $260.