Home Depot to acquire HD Supply Holdings in an $8 billion deal

Home Depot has seen its stock surge as consumer spend on their homes during COVID-19


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Home Depot Inc.
HD,
+0.33%

said Monday that it has agreed to acquire the remaining shares of HD Supply Holdings Inc. at $56 per share, in a deal valued at about $8 billion.

The announcement comes a day before Home Depot is scheduled to report fiscal third-quarter results.

HD Supply Holdings Inc.
HDS,
+2.68%

is a distributor of maintenance, repair and operations (MRO) products for the multi-family and hospitality markets.

“HD Supply complements our existing MRO business with a robust product offering and value-added service capabilities, an experienced salesforce that enhances the strong team we have in place, as well as an extensive, MRO-specific distribution network throughout the U.S. and Canada,” said Craig Menear, chief executive of Home Depot, in a statement.

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The transaction should be completed during Home Depot’s fiscal fourth quarter, which ends Jan. 31, 2021. The deal is expected to add to earnings in fiscal 2021.

The transaction will be funded by cash on hand and debt.

Home Depot stock edged up 0.4% in Monday premarket trading, but has surged 27% for the year to date. The benchmark Dow Jones Industrial Average
DJIA,
+1.37%

has gained 3.3% in 2020 so far.

Analysts are upbeat on upcoming earnings report.

Home Depot is slated to report third-quarter earnings before Tuesday’s opening bell.

The home improvement category, which also includes competitors like Lowe’s Cos.
LOW,
+0.79%
,
has rallied during COVID-19 as consumers shift their spending away from areas like travel and restaurants to the home.

KeyBanc Capital Market third-quarter consumer survey found an “improved spending outlook” from middle- and upper-income individuals across home improvement retail, which includes furniture and furnishings.

Wells Fargo analysts are upbeat about what’s in store for Home Depot’s third-quarter results.

“As anticipated, category growth moderated in Q3 (to +11% vs. 15% in Q2), but remained strong, with the slowdown less dramatic than investors expected three months ago,” analysts led by Zachary Fadem wrote.

“We attribute the continued healthy growth to an extended summer/outdoor season, pick-up in Pro activity, robust housing indicators (turnover, remodel, refinancings, etc.), re-allocation of discretionary spending (travel, concerts, etc.), and favorable weather (warmer Jul./Aug., cooler Sept.).”

Wells Fargo rates Home Depot stock overweight with a $310 price target.

The FactSet consensus for Home Depot’s third-quarter earnings per share is $3.05, up from $2.53 last year. The FactSet consensus for revenue is $31.83 billion, up from $27.22 billion in 2019.

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Placer.ai data shows that visits to Home Depot jumped 15.7% year-over-year in October, indicating that the COVID-19 rally will continue through the holidays.

Visits during the first week of November were up 17.3% the first week of November.

“[W]hile we have gone far beyond any reasonable expectation of what this sector can achieve in 2020, the holiday season appears poised to only add value,” wrote Ethan Chernofsky, vice president of marketing at Placer.ai.

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