Home Depot’s New Stock Buyback Amounts to 30% of their Shares

There are stock buybacks and then there is the new Home Depot (HD) buyback. In case you are wondering why shares of the home improvement retailer are surging $2 this morning to more than $40 per share on news that was leaked to the market earlier this week with little movement in the stock (the company’s $10 billion sale of HD Supply), it’s because of the company’s new buyback program. Home Depot has decided to couple the $10 billion in proceeds from the sale of their wholesale business with $12 billion from a new senior note issuance to initiate a buyback of $22.5 billion. Yes, that’s not a typo, a $22.5 billion buyback.

Regardless of your view on share buybacks, there is no doubt that they are a hot concept right now. Home Depot’s market cap before today was only $75 billion, so this new buyback is truly enormous, representing 30% of the company’s outstanding shares. The company says it will complete the program as soon as is practical.

In case you are wondering how long that might take, Home Depot repurchased 174 million shares in 2006, for $6.7 billion. Given influx of cash they will be seeing shortly, it’s likely they could accelerate that pace a little bit at the very least. It seems reasonable that they could complete the buyback in three years with no trouble, and perhaps faster if they wanted to really be aggressive.

It remains to be seen what type of impact this could have on the company’s earnings. We know it will be accretive but by just how much is more of a question. Home Depot intends to update its guidance (ex HD Supply) in July. We could dig through the company’s past SEC filings to determine the impact from jettisoning HD Supply from their results, but until we hear whether expectations for the core retail business will have to be slashed yet again, we won’t really have a good idea of how much the buyback will boost the stock’s declining earnings.

Full Disclosure: No position in Home Depot at the time of writing