Home Depot Cure Worse Than Disease

Home Depot (NYSE:HD) announced the sale of their wholesale division to who else but a consortium of private equity firms. The wholesale division has been a disappointment and has Nardelli's finger prints all over. Therefore the news was not unexpected. No one was really counting on wholesale for anything (Bob what were you thinking with your GE and Six Sigma background)

Management has also announced a monster share buyback to the point where they have to borrow substantial funds on top of anticipated proceeds from the wholesale disposition.

Credit raters S&P and Moody's Investor Services have announced plans to reduce Home Depot's credit rating. Just what the lenders want to hear as they consider the credit application.

The question now becomes what does Home Depot look like going forward. We are going to rip out wholesale and then borrow a lot of money and then cancel a lot of shares. timing timing timing. Very hard to make a reasonable call that will have some time line consistency.

By the way, the housing market is still problematic. Sub prime mortgage loan problems will probably become a bigger problem than we realize. These external factors will be more important to Home Depot than where they are in their share buy back. One may fear that Home Depot burns cash trying to move the stock short term and then not be ready when the building cycle becomes favourable.