Shares of Home Depot (NYSE: HD) finished lower today as investors seemed to give a thumbs-down to its deal to buy SRS Distribution, a leading specialty-trade company that will help it expand its presence in the pro market.
The stock closed down 4.1%.
Home Depot makes a big move
Home Depot will acquire SRS Distribution for $18.25 billion, including debt, and will pay for the deal with cash on hand in debt.
The move will expand Home Depot’s addressable market by an estimated $50 billion, but the company said it would suspend share buybacks until it returns to its target-debt leverage of two times earnings before interest, taxes, depreciation, and amortization (EBITDA).
SRS will give Home Depot a stronger presence with its Pro customer, an area where it typically has an advantage over rival Lowe’s. CEO Ted Decker said, “SRS is an industry leader with a proven track record of profitable growth across verticals.”
SRS brings Home Depot assets including a 2,500-plus professional sales force, more than 760 branches across the country, and a truck fleet of more than 4,000 strong in addition to a healthy business serving the pro market.
Why investors don’t seem to like it
Most Wall Street analysts who weighed on the deal had positive comments, but investors seem to dislike the pause on share buybacks and are skeptical of the deal at a time when Home Depot’s valuation is high and the home improvement retail market still faces challenges due to a sluggish housing market.
The deal is certainly a risk for Home Depot and represents the company’s first major move under CEO Ted Decker. However, if it can successfully integrate SRS, the deal should pay off over the long run.
Should you invest $1,000 in Home Depot right now?
Before you buy stock in Home Depot, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Home Depot wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of April 1, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
Why Home Depot Stock Slipped Today was originally published by The Motley Fool
Credit: Source link
