Home Depot (HD) got much less for its wholesale outfit than it had hoped and it had to guarantee part of the buyers’ debts.
The company still plans to buy-back 550 million shares at a cost of $22.5 billion. According to The Wall Street Journal, the company will borrow $12 billion shares to fund it.
Why? Announcement of the plan has not raised the price of the company’s shares. EPS will go up when the program is done, but that is artificial because there will be fewer shares. Operating and net earnings will remain the same.
With a market cap of $70 billion, the purchase of this many shares will bring down shares outstanding by about a third. But, it is hard to say what that is a good thing.
The company should be doing other things with the capital. Only 11% of HD stores are outside the US. Yet, it is unlikely that the demand for home supplies is substantially lower overseas than it is here.
HD does not need to borrow $12 billion to purchase it own shares. It has over $10 billion on its balance sheet. Limit any buy-back to that.
And, find something else to do with the money.
Douglas A. McIntyre
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