Home Depot: Will The Impact Of The Data Breach Be Significant?

Home Depot holds the dominant position in the U.S. home improvement industry, accounting for approximately 60% of all revenues. With 1,977 stores across the U.S., Home Depot has been a one-stop shop for many consumers looking to buy home improvement goods. Since the recession, the stock has grown continuously, registering an approximate 45% increase in the last 52 weeks alone. While we expect continued optimism in the U.S. economy, specifically in the housing markets to aid further growth, the impact of a huge data breach announced last year continues to loom over the retailers prospects.

We have a price estimate of $100 for Home Depots stock, which is below the current market price.

Our complete analysis for Home Depots stock

Home Depot was the latest in the chain of large companies under a cyber attack targeted at their payment terminals, where a security breach left approximately 56 million credit and debit card numbers exposed.Although the company did not lose business in the quarters after the revelation of the breach, the management has indicated significant expenses in terms of legal help, credit card fraud, and card re-issuance costs going forward.Trefis attempts to quantify the impact of the data breach and analyze the consequences of this for the retailer in the future.

A report by Ponemon Research estimates the cost of a data breach at upwards of $194 per compromised record.Typical costs related to a breach can be classified into investigation, remediation, notification to individuals, identity theft repair, and credit monitoring, regulatory fines, disruptions in normal business operations, lost business, and related lawsuits.Lets look at each of these in turn with respect to Home Depots case:

Based on our calculations, we arrive at an estimated cost of $176 per compromised record in recurring expenses or a total cost of approximately $10 billion to be incurred by the end of the decade. On account of disruptions in business and lost business, we expect a modest 6% fall in EBITDA going into 2017, which is expected to once again reach its forecasted levels by the decade-end as consumers regain confidence in the retailer. The managements candidness in the face of adversity, and the steps that they have taken to mitigate the chances of such an attack in the future, in terms of investment in cyber security, could recoup confidence among existing customers and also increase appeal among new ones. We expect higher capital expenses as the retailer continues to invest in cyber security enhancements, such as enhanced encryptions and EMV Chip-and-PIN technology.Taking all these factors into account, we anticipate a modest 4% downside to our current price estimate on account of the breach for Home Depot.

See our complete analysis for Home Depot in the scenario of the data breach

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Home Depot: Will The Impact Of The Data Breach Be Significant?