1 NYSE

2 I. Company Overview Largest home improvement retailersSells various building materials, home improvement products, lawn and garden products. Provides a number of services. 1) Do-It-Yourself Customers, who are homeowners that buy products for their home projects and attend clinics and workshops at Home Depot; 2) Do-It-For-Me Customers, who are homeowners that purchase materials and then hire a third party to complete the project; 3) Professional Customers, who are renovators/remodelers, general contractors, repairmen, installers, small business owners, and tradesmen. Home Depot is one of the world’s largest home improvement retailers, with stores throughout the United States, Puerto Rico, U.S. Virgin Islands, Guam, Canada, and Mexico. Home Depot sells various building materials, home improvement products, lawn and garden products, and it provides a number of services. Home Depot targets three primary customer groups: 1) Do-It-Yourself Customers, who are homeowners that buy products for their home projects and attend clinics and workshops at Home Depot; 2) Do-It-For-Me Customers, who are homeowners that purchase materials and then hire a third party to complete the project; and 3) Professional Customers, who are renovators/remodelers, general contractors, repairmen, installers, small business owners, and tradesmen.

3 II. Thesis Good proxy for the United States real estate market.Stock is likely to rise as the national real estate market grows. Lowe’s has traditionally targeted retail customers, whereas Home Depot’s customers represent a wide swath of customer groups in the real estate industry. Company’s revenue to continue to expand Due to Home Depot’s broad range of customers and facilities located all across the United States, we believe that it is a good proxy for the United States real estate market. Given this belief, the stock is likely to rise as the national real estate market grows. Home Depot and Lowe’s are comparable companies; however, Lowe’s has traditionally targeted retail customers, whereas Home Depot’s customers represent a wide swath of customer groups in the real estate industry. This variety of customer groups will enable the company’s revenue to continue to expand with the United States real estate market, without being limited by unequal growth in any one of its customer groups or regional markets.

4 III. Variant PerceptionAnalytical Not just another home improvement company Should Consider Home Depot as a proxy for the national real estate market. Long – Term Strategy We have an analytical variant perception. As stated above, we believe that the Home Depot has been mischaracterized as solely a home improvement company. However, given the areas of business and the brick-and-mortar locations of the company, we feel that Home Depot is distinguishable from the standard home improvement company. Consequently, Home Depot should be considered to be more of a proxy for the national real estate market. We hope to have a longer-term strategy with this company, so that we can take advantage of the growing United States real estate industry.

5 IV. Positives Growth Strategy: Differentiation Cost LeadershipMarket Development Market Penetration Product Development Cost Leadership Home Depot’s generic strategy captures the biggest market share. Their intensive growth strategies specify the approaches used to sustain business growth in the international home improvement retail market, and their leadership is linked to the successful implementation and combination of its generic strategy and intensive strategies for growth. The generic strategy is supported through the company’s intensive strategies for growth. Home Depot’s primary generic strategy is the Porter's Model which is broad differentiation combined with cost leadership. Their differentiation strategy offers unique products and services in order to compete against other home improvements like Lowe's. Their strategic objective is to offer high quality service and a wide array of products. High quality service consists of employees who are field experts (e.g. carpenters, plumbers) who then can provide expert advice to the customers. The financial objective of the cost leadership generic strategy is cost minimization, while the strategic objective is developing close and exclusive relationships with suppliers to achieve cost minimization. Three types of intensive growth strategies: market development, product development, and market penetration. Market development is the main intensive growth strategy. It supports business growth by establishing the firm’s presence in new markets or new market segments (generally through acquisitions). Home Depot will continue to acquire more firms to establish strong market presence. E.g.) In 2015, Home Depot acquired Interline Brands, a national distributor and direct marketer of broad-line maintenance, repair and operations (MRO) products, to achieve successful entry in the market segment of non-industrial businesses. Assets included an outside sales force, fulfillment capabilities in the residential MRO market, and a distribution network of more than 90 locations throughout the U.S., Canada and Puerto Rico. Product development is the second strategy where new products are made to attract more customers which effectively leads to business growth. This strategy also contributes to the strategic objective of expanding the company’s product mix and the generic strategy of broad differentiation E.g.) House brands like Husky, Glacier Bay, and Commercial Electric are part of the firm’s competitiveness and growth. Market Penetration is the third strategy used, and it supports business growth through the more sales of the same products to customers in the same or current market. For example, Home Depot implements discount sales and special offers to get more customers from its current markets.The strategic objective is to offer products at affordable prices. Home Depot’s organizational structure consists of two parts: one for the people and the other for the business itself. The first part has four main components: 1) The inverted pyramid; 2) excellence in service; 3) people-centricity; and 4) collaboration. The inverted pyramid has the prioritization of some if its stakeholders in the company's strategies and organizational culture, then its customers, and then the CEO, who is last because corporate values are inculcated among all employees, especially the front-line workers at the stores. Excellence in service is highlighted by the high quality service through training programs, and a human resource strategy that hires field experts like carpenters and plumbers who provide expert advice when customers make purchase decisions. This all enhances competition People-centricity is where all employees are encouraged to establish productive and enjoyable work relations and employee-customer relations Collaboration amongst the store employees is encouraged so the employees perform as a team. The collaborative efforts leads to a synergy, and there is no need to rely on separate individual employee contributions. Organizational Structure for the business has three components: 1. Geographic Divisions: • One division in US, one in Canada, one in Mexico 2. Global functional groups • Global Human Resource Management Group • Global Merchandise Group • These groups used to address specific business functional needs 3. Global hierarchy • At global and store levels • Executive VP of US stores reports to CEO (global) • Store managers report to geographic heads of division (local) There are several advantages to this type of organizational structure for the business. With this structure in place, Home Depot maintains centralized corporate control; emphasizes focus on products and functions through the functional groups; highlights some degree of customization for regional and local market conditions and consumer preferences through the geographic divisions. The disadvantages pale in comparison to the advantages, but should still be noted. There is the consideration of limited autonomy for store managers; limited support for business flexibility in responding to local market conditions; and limited decision making for the manager and associates The Porter Model Quick overview: Competitive rivalry or competition (strong force) Bargaining power of buyers or customers (strong force) Bargaining power of suppliers (weak force) Threat of substitutes or substitution (strong force) Threat of new entrants or new entry (moderate force) The most important factors to Home Depot are competition, bargaining power of customers, and threat of substitution. As such, Home Depot’s strategies effectively address these external factors. Competitive Rivalry or Competition with Home Depot (Strong Force) Factors for strong competition: High number of firms (strong force): large number of competitors. Biggest one: Lowe's Low switching costs (strong force): easy for customers to move from Home Depot to other places that sell similar products/services Moderate exit barriers (moderate force): competitors are not likely to easily exit the market; they’d rather keep competing against Home Depot Bargaining Power of Home Depot’s Customers/Buyers (Strong Force) Factors for bargaining power of buyers: Low switching costs (strong force): relatively easy to transfer to other home improvements stores. This gives customers the leg up in influencing firms like Home Depot High availability of substitutes (strong force): customers have their choices to pick from like Walmart Large population of buyers (weak force): Home Depot still expects high demand even if some buyers leave to other places because of the large population of buyers. Customers have strong influence on Home Depot and their business. Bargaining Power of Home Depot’s Suppliers (Weak Force) Factors for bargaining power of suppliers: Large population of suppliers (weak force): weak individual effort Exclusivity with retailers (weak force): Home Depot and Lowe’s  maintain exclusive and semi-exclusive business relationships with suppliers. Some suppliers do business only with Home Depot or only with Lowe’s; there is no mingling. Consequently, this weakens the effect of suppliers on Home Depot and the industry. This is true even with their moderate size Moderate size of individual suppliers (moderate force)

6 V. Risks 5 Main Concerns Potential Decrease in stock priceHighest stock price in its history  However, the real estate industry is projected to grow by more than 4% Lowe’s could overtake Home Depot’s professional customer base through their Omni Channel strategy MRO (customers involved in maintenance, repair, and operations) ITB (professionals involved in construction) Data Leaks Threat of Substitutions or New Entrants Home Depot has four main risks which may be of concern: Large exposure to the real estate industry could result in the stock price decreasing significantly Currently, Home Depot is at its highest stock price in its history: Enter Current Stock.   Some investors might not consider it to have much more room to grow However, the real estate industry is projected to grow by more than 4% Lowe’s could overtake Home Depot’s professional customer base through their omni channel strategy Omni Channel Strategy differentiates between two types of professional customers: MRO (customers involved in maintenance, repair, and operations) and ITB (professionals involved in construction) Risk of data leaks Due to the increasing reliance on digitally stored information, Home Depot is increasingly susceptible to these data leaks as exemplified by their prior data leak

7 VI. Legal Analysis Pending Litigation Relevant Past LitigationHome Depot was joined as a defendant in a suit for the mislabeling of a washing machine brand Relevant Past Litigation Employee termination dispute Customer Data Breach Environmental Investigation EPA investigation of lead safety work practices

8 Valuation In order to not oversell the company, we have adopted conservative estimates.

9 Revenue Growth Increasing. Average rate of growth of 6.64%Over the past several years, the revenue growth rate has been increasing. However, in our calculations, we have assumed an average rate of growth of 6.64% (an average of the business years of 2015 and the two latest financial reports). This type of conservative estimate is another way that we had stress-tested a lack of increased growth rate due to heightened competition from competitors, or a slowing down of the real estate market.

10 Perpetuity Growth RateU.S. Rate: 2.2% Real Estate: > 5% Assumed: 3% The United States’ growth rate is currently at 2.2%; however, given the fact that many analysts are reporting the real estate industry’s growth rate to be in excess of 5%, we have assumed that the perpetuity growth rate is 3%. The result is a lower implied stock price. The following chart demonstrates the effect of the growth rate on the price of the stock. Because the price of the stock is so sensitive to the changes in the growth rate, we thought that it would be more wise if we used one of the lower growth rates to decrease expectations and mitigate rash decisions with this stock.

11 Cost of Debt Weighted Average Cost of Debt: 3.86%Maturity Amount (Mil) Coupon % 12/16/2036 3,000.00 5.875 04/01/2043 1,000.00 4.2 04/01/2046 1,600.00 4.25 09/15/2025 3.35 04/01/2021 1,350.00 2 09/15/2056 3.5 04/01/2026 1,300.00 3 09/15/2026 2.125 06/01/2022 1,250.00 2.625 03/15/2045 4.4 09/10/2018 1,150.00 2.25 04/01/2041 5.95 02/15/2024 1,100.00 3.75 06/15/2019 04/01/2023 2.7 09/15/2040 500 5.4 09/15/2020 3.95 02/15/2044 4.875 09/15/2017 1.22 We took the weighted average of Home Depot’s latest debt purchases to calculate the cost of debt. By taking the weighted average, we are able to apportion the various coupon rates by their respective amounts. There is still the risk that the 3.86% cost of debt is not fully representative, but the intention of using a weighted average was to mitigate that issue.

12 Risk Free Rate Risk Free Rate: 2.57%In order to calculate the risk free rate, we took an average of the latest 10-year treasury bond rates. The 2.57% is an approximation.

13 Tax Rate Much like many of these other figures, the design behind our tax rate assumptions was to stay more conservative. We assumed a slightly higher amount of tax would apply without change over the next 5 years at a rate of 36.4%. Our idea was to keep the tax calculation more simple because the amounts would not alter the stock price too much, and we wanted some areas to be stable. Much like many of these other figures, the design behind our tax rate assumptions was to stay more conservative. We assumed a slightly higher amount of tax would apply without change over the next 5 years at a rate of 36.4%. Our idea was to keep the tax calculation more simple because the amounts would not alter the stock price too much, and we wanted some areas to be stable.

14 Current Price Compared with Historical PricesCurrent price was $146.90 Implied Equity Value – $152.26 Currently, Home Depot is trading at a premium compared with its historical value. That is not to say that it will revert back to its historical share price, but there is a danger that it will revert or have limited growth. At the time of our calculations, the current price was $147.90, which is only around $5 less than the conservative implied share price that we developed in discounted cash flow spreadsheet. Considering the close correlation that Home Depot has with the U.S. real estate market, we do not think that the share prices will revert to its historical values. Many analysts foresee the U.S. real estate industry to continue expanding for the near/medium future.

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