Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Home Depot Goes Shopping

Home Depot (NYSE: HD  ) has a holiday surprise for shareholders: more share buybacks. Just days after rival home-improvement retailer Lowe's (NYSE: LOW  ) announced that it would repurchase up to $1 billion of its own stock, Home Depot said today that it has completed its current $1 billion buyback, and that the board authorized another $1 billion in share repurchases.

The company has bought back $3 billion worth of stock since July 2002, so this new authorization will mark $4 billion in total repurchases. Home Depot's certainly got the money, with $4.9 billion in cash sitting on its balance sheet as of Nov. 2. It's also solidly free cash flow positive, generating $3.6 billion in excess green through the first nine months of the year. Returning value to shareholders through share buybacks seems like a good use for the company's war chest.

The only question is whether Home Depot's stock is undervalued. Warren Buffett, who has generally praised share repurchases as a means to enhance shareholder value, has warned against companies buying back their stock when it's too richly priced. This was the same concern raised by Jeff Hwang Monday regarding Lowe's buyback news.

Home Depot's going for around 19 times earnings, with expectations of 15%-17% earnings growth for the current fiscal year (ending Jan. 2004). That's before considering the effects of the new share buybacks, should they commence during the fourth quarter.

Given the strength of the business and the balance sheet, and the fact that the stock isn't ridiculously overvalued, this is another positive development for shareholders. It's really just icing on an already great year, during which Home Depot shares have climbed from $20.20 in February to around $34 today.

To learn more about share buybacks and why they're valuable, check out these articles by Zeke Ashton:The Power of Buybacks,Buybacks: The Invisible Yield, andDell's Hollow Buybacks. Or talk about Home Depot on the company's discussion board.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 500503, ~/Articles/ArticleHandler.aspx, 10/26/2016 1:23:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,223.10 53.83 0.30%
S&P 500 2,141.05 -2.11 -0.10%
NASD 5,265.27 -18.13 -0.34%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 1:07 PM
HD $123.49 Up +0.15 +0.12%
Home Depot CAPS Rating: ****
LOW $67.81 Down -0.67 -0.97%
Lowe's CAPS Rating: ****