With revenues exceeding $72 billion, Home Depot, founded in 1978, is the world's largest home improvement retailer, and the second largest U.S. retailer. The company mainly operates retail warehouse-type stores that sell a wide assortment of building materials and home improvement and lawn and garden products, primarily to the do-it-yourself and home remodeling markets. At July 31, 2004, HD operated 1,788 stores, including 1,716 Home Depot stores (105 in Canada and 42 in Mexico), 54 EXPO Design Centers, five Home Depot Supply stores, 11 Home Depot Landscape Supply stores, and two Home Depot Floor stores.

Home Depot stores average 107,000 sq. ft., plus 22,000 sq. ft. of garden center and storage space. They stock 40,000 to 50,000 items, including brand name and proprietary items. HD aims to provide a broad range of merchandise, consisting of many different kinds of building and home improvement materials, at competitive prices. The company trains employees to be knowledgeable about the products in the stores; employees may also have trade skills or direct experience in using the products. HD also offers installation services for do-it-for-me customers, typically homeowners who purchase materials themselves and hire third parties to complete the project and/or installation. In FY 04, the company acquired Installed Products U.S.A., a roofing and fencing installed services business; and RMA Home Services, a replacement windows and siding installed services business.

Home Depot Landscape Supply stores are designed to extend the reach of Home Depot's garden departments, by focusing on professional landscapers and avid do-it-yourself garden enthusiasts.

EXPO Design Centers, which average about 100,000 sq. ft., sell more upscale products and services primarily for home decorating and remodeling projects. Unlike Home Depot stores, they do not sell building materials and lumber.

In late FY 04, under The Home Depot Supply brand, the company combined three wholesale businesses: Maintenance Warehouse, a distributor of maintenance, repair and operations supplies to the multi-family housing, hospitality and lodging industries; Apex Supply Company, a distributor of plumbing, HVAC, appliances and other related products primarily to trade and mechanical contractors; and HD Builder Solutions Group, which provides professional homebuilders with flooring, countertops and window treatments. HD's e-commerce site, homedepot.com, sells about 10,000 products over the Internet. In FY 04, the site was enhanced to allow customers to sign up for in-home consultations for HD's installation services.

During FY 05, HD acquired White Cap Construction Supply, Inc., which now operates 74 Pro distribution branches across the U.S. The company also purchased 20 Home Mart stores in Mexico, bringing the total to 42.

S&P Recommendation - Since January 1, 1987, Standard and Poor's has ranked a universe of common stocks based on a given stock's potential for future performance. Under proprietary STARS (Stock Appreciation Ranking System), S&P equity analysts rank stocks according to their individual forecast of a stock's future capital appreciation potential versus the expected performance of the S&P 500 index (before dividends), based on a 12-month time horizon. STARS was designed to meet the needs of investors looking to put their investment direction in perspective.

Quantitative Evaluations - In contrast to our qualitative STARS recommendations, which are assigned by S&P analysts, the quantitative evaluations described below are derived from proprietary arithmetic models. These computer-driven evaluations may at times contradict an analyst's qualitative assessment of a stock. One primary reason for this is that different measures are used to determine each. For instance, when designating STARS, S&P analysts assess many factors that cannot be reflected in a model, such as risks and opportunities, management changes, recent competitive shifts, patent expiration, litigation risk, etc.

S&P Earnings & Dividend (Quality) Rank - S&P's appraisals of the growth and stability of earnings and dividends over the past 10 years for individual companies are indicated by the following quality ranks. Quality Rankings are not intended to predict stock movements.

S&P Fair Value Rank - Using S&P's exclusive
proprietary quantitative model, stocks are ranked in one of five groups, ranging from Group 5, listing the most undervalued stocks, to Group 1, the most overvalued issues. Group 5 stocks are expected to generally outperform all others. A positive (+) or negative (-) Timing Index is placed next to the Fair Value ranking to further aid the selection process. A stock with a (+) added to the Fair Value Rank simply means that this stock has a somewhat better chance to outperform other stock with the same Fair Value Rank. A stock with a (-) has a somewhat lesser chance to outperform other stocks with the same Fair Value Rank. The Fair Value rankings imply the following: 5-Stock is significantly undervalued; 4-Stock is moderately undervalued; 3-Stock is fairly valued; 2-Stock is modestly overvalued; 1-Stock is significantly overvalued.

S&P Fair Value Calc. - The price at which a stock should trade at, according to S&P's proprietary quantitative model that incorporates both actual and estimated variables (as opposed to only actual variables in the case of S&P Earnings & Dividend Rankings). Relying heavily on a company's actual return on equity, the S&P Fair Value model places a value on a security based on placing a formula-derived price-to-book multiple on a company's consensus earnings per share estimate.

Investability Quotient (IQ) - The IQ is a measure of investment desirability. It serves as an indicator of potential medium-to-long term return and as a caution against downside risk. The measure takes into account variables such as technical indicators, earnings estimates, liquidity, financial rations and selected S&P proprietary measures.

Standard & Poor's IQ Rationale: The Home Depot, Inc.
	Raw Score	Max Value
Proprietary S&P Measures	90	115
Technical Indicators	23	40
Liquidity/Volatility Measures	15	20
Quantitative Measures	62	75
IQ Total	190	250

Volatility - Rates the volatility of the stock's price over the past year.

Technical Evaluation - In researching the past market history of prices and trading volume for each company, S&P's computer models apply special technical methods and formulas to identify and project price trends for the stock.

Relative Strength Rank - Shows, on a scale of 1 to 99, how the stock has performed versus all other companies in S&P's universe on a rolling 13-weeks basis.

Global Industry Classification Standard (GICS) - An industry classification standard, developed by Standard and Poor's in collaboration with Morgan Stanley Capital International (MSCI). GICS is currently comprised of 10 Sectors, 24 Industry Groups, 62 Industries, and 132 Sub-industries.

S&P Core Earnings - Standard and Poor's Core Earnings is a uniform methodology for calculating operating earnings, and focuses on a company's after-tax earnings generated from its principal businesses. Included in the definition of its principal businesses. Included in the definition are employee stock option grant expenses, pension costs, restructuring charges from ongoing operations, write downs of depreciable or amortizable operating assets, purchased research and development, M&A related expenses and unrealized gains/losses from hedging activities. Excluded are pension gains, impairment of goodwill charges, gains or losses from asset sales, reversals of prior-year charges and provision from litigation or insurance settlements.

As of December 31, 2004, SPIAS and their research analysts have recommended 26.5% of issuers with buy ratings, 61.3% with hold ratings and 12.2% with sell ratings.

All views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part or analyst compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed in this research report.

For purposes of this report, 4 & 5 STARS are BUYS, 1 & 2 STARS are SELLS and 3 STARS are HOLDS. The BUY-HOLD-SELL ranking system used in this report is a consolidated version of our proprietary STARS ranking system defined below:
5-STARS: Total return is expected to outperform the total return of the S&P 500 Index by a wide margin, with shares rising in absolute price.

4-STARS: Total return is expected to outperform the total return of the S&P 500 Index, with shares rising in absolute price.

3-STARS: Total return is expected to closely approximate that of S&P 500 Index, with shares generally rising in price.

2-STARS: Total return is expected to underperform the total return of the S&P 500 Index, and share price is not anticipated to show a gain.

1-STAR: Total return is expected to underperform the total return of the S&P 500 Index, with shares falling in absolute price.

One or more affiliates of SPIAS received non-investment banking compensation from this company during the past 12 months.

This research report was prepared by Standard & Poor's Investment Advisory services LLC ("SPIAS"). This report may have been provided to you either by (i) S&P under a license agreement with The McGraw-Hill Companies, Inc. ("McGraw-Hill"), which holds the copyright of this report or (ii) a S&P's client who is granted a sub-license by S&P. The equity research report and recommendations are performed separately from any other analytic activity of Standard & Poor's. Standard and Poor's equity research analysts have no access to non-public information received by other units of Standard & Poor's. Standard & Poor's does not trade on its own account.

Disclaimer
This material is based upon information that we consider to be reliable, but neither SPIAS nor its affiliates warrant its completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendations in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.

This investment analysis was prepared from the following sources: S&P MarketScope, S&P Compustat, S&P Industry Reports, I/B/E/S International, Inc., Standard & Poor's, 55 Water St., New York, NY 10041. (212) 438-2000.