1. The Home Depot By Mike Sartorius

2. Presentation Outline Past Position Company Profile Pertinent News Financial Statements Industry Comparison Stock Comparison: 1 and 3 year Trend Analysis Common Size Analysis Stock Valuations EVA & MVA Model Summary of Valuations Analysts Recommendation Why is this stock for SMIP Recommendation

3. Snapshot Market Cap: $85,666 million What Industry:Retail (Home Improvement) What Sector:Services Recent Stock Price:$39.25 52 Week High:$39.95 52 Week Low:$31.93 Beta:.94 Ticker Symbol:HD

4. Past Position Number of Shares:75 Date Purchased:November 1999 Date Sold:March 2003 Buy Price:$54.03 Sell Price:$22.59 Approximate Loss:$(2357.94)

5. Graph of Past Position

6. Profile The Home Depot was founded in 1978 in Atlanta, Georgia and has since become the world's largest home improvement retailer, operating more than 1,700 stores (Home Depot, EXPO, and other subsidiary companies) in the United States, Mexico, and Canada. Home Depot stores stock approximately 40,000 to 50,000 different kinds of building materials, home improvement supplies, décor and lawn and garden products that are sold to do-it-yourselfers, home improvement contractors, trades people, and building maintenance professionals.

7. Profile Continued Expo Design Center stores sell products and services primarily for home decorating and remodeling projects. Other subsidiary companies under the Home Depot parent company, primarily distribute products and sell installation services to businesses and governments. Home Depot’s biggest competitors are Lowes, Sears, and other small hardware stores.

8. Pertinent News September 21, 2004 - Home Depot Recruiting Military Spouses –Home Depot, which averages a new store opening every 48 hours, said its effort with the Defense Department also will involve hiring more veterans, active duty service members about to be discharged, National Guard members and reservists. October 12, 2004 - Home Improvement Industry Pursues Hispanic Market –The U.S. home improvement industry is looking to build business with U.S. Hispanics in hopes of cashing in on a market that could be as big as $30 billion. –Note: Home Depot estimates a $900 billion global home improvement market opportunity.

9. Pertinent News October 10, 2004 - Shares of Home Depot Look Undervalued –Home Depot accounts for 18 percent of this market, more than twice the amount of Lowe's, which has about 1,000 stores. Analysts polled by Reuters expect Home Depot to post per-share profit of $2.21 in fiscal 2005, which ends in January, and $2.53 in fiscal 2006. –Home Depot rolled out its first store in Manhattan last month. Chief Executive Robert Nardelli is emphasizing strategic expansion, with hopes to open more than 200 stores per year. He is also emphasizing new higher-end products, improved customer service and more reliance on information technology.

10. Pertinent News September 22, 2004 - Home Depot, Lowe's see strong post- hurricane demand –"We're 10 weeks after Charley and are still seeing a tremendous amount of rebuilding activity in Southwest Florida, which leads us to believe that we will have a rebuilding phase going on for quite a while throughout the state.”

11. Financial Statements Please Refer to Handout

12. Industry Comparison

13. Industry Comparison Continued

14. Stock Comparison: 1 year

15. Stock Comparison: 3 years

16. Trend Analysis

17. Trend Analysis Continued

18. Common Size Analysis

19. Free Cash Flow Inputs (18%)

20. Free Cash Flow Model (18%)

21. Free Cash Flow Inputs (12%)

22. Free Cash Flow Model (12%)

23. EVA & MVA Inputs

24. EVA & MVA Model

25. Alternative Valuation Inputs

26. Alternative Valuation Ratios

27. Alternative Valuation Model

28. Basic Valuations Inputs

29. Basic Valuation Models

30. Summary of Valuations Basic Stock Valuations:$76.54 or $19.47 EVA & MVA:Creating Shareholder Value Free Cash Flow (18%):$45.33 Free Cash Flow (12%):$28.38 Value Pro:$44.5 Alternative Valuation:Buy Below $37.5

31. Analysts Recommendations

32. Risk Risk vs. Volatility

33. Risk to HD Higher interest rates reduce home improvement projects Suppliers raise prices - increased costs Over-expansion -growth is too rapid Growth into emerging markets doesn’t work Relatively low profit margin - any economic slowdown could hurt earnings (unlikely)

34. Why Home Depot for SMIP Leader in the Industry –Twice the size of Lowes –Almost all ratios are better than Lowes High ROE and ROA Growth stock selling at a discount –HD plans to open 200 new stores per year –Moving into both Mexico and Canada (Lowes isn’t expected to move internationally for three years) –Price to Earnings near all-time low

35. Why HD For SMIP Continued Management appears to be rational – Low dividends due to ability to reinvest shareholders money at higher rates than shareholders can achieve Consistent Operating History –Superior Growth rates Favorable long-term perspective –Growing investments into homes We understand how the company works

36. Recommendation Shares to Buy:200 Buy Price:$37.5 Set 15% floor:$31.88 Set Ceiling: P/E ratio of 60 or above Don’t buy until price drops below target buy price after election