Now that Home Depot Inc. (NYSE: HD) has sold its wholesale unit to private equity interests, it has decided to buy-back an astonishing $22.5 billion of its stock. After hours, the company's stock rose over 5% to $40.34. No wonder. The move will bring in a large portion of the shares that make up its $75 billion market cap.
The decision is a sort of "shock and awe" move that will raise the company's EPS sharply by reducing the share count. But it may also be an acknowledgment that Home Depot's rapid growth years are behind it. The company is essentially saying that its best use of capital is not for expansion but rather to improve shareholder value by reducing the number of shares outstanding.
The buy-back indeed has the taste of financial engineering. Home Depot cannot long disguise the drop in net income that the company is likely to experience as its sales are hurt by falling housing starts and rising fuel prices.
It is, quite simply, a nice, one-time event.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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