Home Depot’s A rating affirmed by Fitch despite GMS acquisition

Investing.com -- Fitch Ratings has affirmed The Home Depot (NYSE:HD), Inc.’s Long-Term Issuer Default Rating (IDR) at ’A’ and Short-Term IDR at ’F1’ following the company’s proposed $5.5 billion acquisition of GMS, Inc. The Rating Outlook remains Stable.

The rating agency expects the cash- and debt-funded acquisition will only modestly delay Home Depot’s deleveraging trajectory after its SRS acquisition in 2024. Fitch projects the GMS deal will slightly increase proforma EBITDAR leverage to about 2.4x in 2025 and 2.15x in 2026, compared to previous expectations of 2.3x and 2.0x, before returning to 2.0x in 2027.

Home Depot is expected to continue pausing share repurchases and allocate free cash flow to debt reduction until it reaches its 2.0x leverage target. The ratings are supported by the company’s large scale, with fiscal 2024 revenue of approximately $160 billion, and robust cash flow.

Fitch forecasts Home Depot’s sales could reach around $164 billion in 2025, assuming the GMS acquisition closes in the third quarter of 2025, up from $159.5 billion in 2024. The rating agency notes that tariff impacts will pressure sales, but the 2024 SRS acquisition and partial year of GMS in 2025 should offset potential volume declines due to eroding consumer confidence and declining affordability in the second half of 2025.

The proposed GMS acquisition aligns with Home Depot’s strategy of growing market share by increasing offerings to complex professionals working on larger projects. The deal adds drywall, ceilings and other offerings to its specialty trade distribution platform that has been developing since the June 2024 acquisition of SRS.

Fitch projects Home Depot’s EBITDA will decline to about $24 billion (mid-14% margin) in 2025 from around $25.3 billion (approximately 16% margin) in 2024. This profitability decline is primarily attributed to inflationary tariffs and the dilutive impact of acquisitions.

The rating agency expects Home Depot’s free cash flow after dividends, which was about $7 billion in 2024, could decrease to the high $3 billion range in 2025 and range from $4 billion to $5 billion over the rating horizon.

Compared to higher-rated peers like Walmart (NYSE:WMT), Inc. (AA/Stable) and Amazon.com (NASDAQ:AMZN), Inc. (AA-/Stable), Home Depot has smaller scale. Walmart was about 60% larger than Home Depot in EBITDA for 2024, while Amazon’s EBITDA was more than five times larger.

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