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Global Credit Research - 25 Mar 2011
Approximately $9 billion in rated debt securities affected
New York, March 25, 2011 -- Moody's Investors Service today changed The Home Depot, Inc.'s
rating outlook to positive from stable. All existing ratings,
including its Baa1 senior unsecured rating and its P-2 Commercial
Paper rating, were affirmed.
The change in outlook to positive acknowledges Home Depot's solid
growth in EBIT and its clear commitment to maintaining its targeted leverage
ratio. For the fiscal year ended January 30, 2011,
EBIT improved to $7.4 billion from $6.5 billion
in the prior fiscal year as a result of an improvement in the broader
economic environment and Home Depot's strong execution. "Home
Depot's sharp focus on the in-store shopping experience and
supply chain have led to a sustainable improvement in its earnings,"
said Maggie Taylor, Senior Credit Officer of Moody's.
The positive outlook also reflects Moody's expectation that the
size of Home Depot's remaining share authorization will shrink over
the near term to a level that is more in line with its cash flow.
The positive outlook anticipates that Home Depot will continue to make
share repurchases under its remaining $9.9 billion authorization
but only to the extent that its leverage remains within the parameters
of its existing target and that the current leverage target will remain
Home Depot's Baa1 senior unsecured rating reflects its solid credit
metrics, very good liquidity, its considerable scale,
and its market position as the largest dedicated home improvement retailer
in the United States. The rating considers the significant progress
that Home Depot has made in improving its in store shopping experience,
website, and supply chain. Moody's expects that the
U.S. housing market will remain weak and well below its
pre-recession levels. However, the rating anticipates
that repair and replacement projects and the modest improvement in the
broader U.S. economic environment should support a modest
level of growth in the home improvement sector. Thus fueling a
modest level of growth in Home Depot's sales and earnings going
Ratings could be upgraded should Home Depot's performance continue
to improve as a result of its ongoing focus on supply chain, customer
service, and merchandising. In addition, Home Depot
would need to largely fund shareholder returns with free cash flow while
maintaining its current 2.0 to 2.5 times leverage target
and very good liquidity. Quantitatively, Home Depot would
need to continue to maintain retained cash flow to net debt above 23%.
Ratings could be downgraded should Home Depot's operating performance
falter or financial policies become more aggressive such that retained
cash flow to net debt was sustained below 18%. Downward
rating pressure may also develop should Home Depot's operating performance
retreat from its current levels or should it increase its current leverage
The last rating action on Home Depot was on July 26, 2007 when its
senior unsecured rating was downgraded to Baa1 from Aa3 and its Commercial
Paper rating was downgraded to P-2 from P-1.
The principal methodology used in this rating is the Global Retail Rating
Methodology published in December 2006.
The Home Depot, Inc. is the largest home improvement retailer
in the United States. Home Depot operates about 2,250 million
in the United States, Puerto Rico, U.S. Virgin
Islands, Guam, Canada, China and Mexico. Revenues
are about $68 billion.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes Home Depot's outlook to positive
250 Greenwich Street
New York, NY 10007
No Related Data.
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