Great Job Bob!

December 8th, 2006

By Vitaliy Katsenelson, CFA

December 5th, 2006 - Minyanville.com 

Herb Greenberg wrote a wonderful column and said something I’ve wanted to say for a long time, that blaming Bob Nardelli for the lackluster performance of Home Depot’s (HD) stock is just plain silly. Since Nardeli took over Home Depot in 2000, Home Depot’s earnings have grown at an amazing clip of 20% a year, revenues over 15%, net margins have increased and return on capital went up every single year. This is not a scorecard of failed CEO.

Those who are looking at Home Depot’s stock performance and blaming Nardelli for it need to separate between the analysis of a company and a stock. Home Depot’s stock has gone nowhere not because the company fundamentally did not perform well - the CEO’s main responsibility - the stock has not gone anywhere because it was overpriced in late 2000. As often happens, investors got overexcited about this great company and drove HD’s valuation to a ridiculous level of 46 times earnings.

If you bought Home Depot in late 2000, blame yourself (you overpaid for the company) not the CEO. I don’t know if any other CEO would have done a better job running this giant. As I have mentioned many times before, other large growth companies such as Johnson & Johnson (JNJ), Microsoft (MSFT) and Wal-Mart (WMT) - cannot forget this one, of course - were lifted to religion stock status in the late 90s and have been coming back to earth since. Bob (Nardelli), if you are reading this, ask for another bonus, you did a terrific job.

 

Positions WMT, MSFT, JNJ

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Entry Filed under: Analysis & Research

4 Comments Add your own

  • 1. yo  |  December 11th, 2006 at 7:38 am

    Great article, presently the stock market is a voting machine, over time the stock market is a weighing machine.

    HD unrealized value

  • 2. Scott Holtzman  |  December 12th, 2006 at 5:21 am

    “…..need to separate between the analysis of a company and a stock”?

    What are you kidding with this philosophical dribble? The CEO is ‘directly” accountable to share holders for VALUE, hence the generous compensation. To claim the stock was “overpriced” since 2000 is laughable but not laudable.

    Before you suggest (again) a bonus for “ole Bobbie” consider the shareholders ROI………or would that be “just plain silly”?

  • 3. Jason Popan  |  December 17th, 2006 at 4:07 am

    I was employed at a HD store during the transition into the Nardelli era. New hires were paid significantly less and were significantly less knowlegeable and motivated as a result of the changes implemented by his excellency. In a matter of a year, a vibrant and upbeat workplace turned into hellhole. Instead of leading associates, management became more like a police force. That said, I am sure it has all been, in the short run, profitable for HD and, of course, his excellency. However, I believe, customers take notice of the reduced quality without any savings for them .

  • 4. joe giustino  |  January 2nd, 2007 at 7:05 am

    He may have done a great job of running the company - but his performance at the annual shreholders meeting was a disgrace…

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