The old saying, “More money’s been stolen with a pen than with a gun,” always struck me as clever and true. But increasingly we live in the age of PINs — not pens — and I’ll state it for the record right here and right now: It’s about time someone comes up with a modernized witty phrase about how people steal money.
Because increasingly, large-scale data breaches are becoming the criminal’s preferred method.
The infamous Target (TGT) data breach last year — an effort that spanned two months and compromised the personal information of around 110 million Target customers — became the face of new-age crime tactics. Unfortunately, the next large data breach of the modern age was confirmed Monday: the Home Depot (HD) data breach.
Obviously this does not bode well for HD stock.
We don’t yet know how bad the Home Depot data breach is, but it’s very large. According to its press release, Home Depot has more than 2,200 stores in all 50 states, the District of Columbia, and various overseas territories. Home Depot, which boasts a market capitalization of over $100 billion and did nearly $80 billion in sales last year, has higher annual revenues than Target, making it a treasure trove for cyber-crooks.
Obviously, this is a big problem for Home Depot as a business. It has to scramble to identify and fix whatever part of its payment data system was compromised while working with law enforcement to quash whatever fraud is currently taking place as a result of the breach. But most important Home Depot has to act swiftly and communicate effectively and honestly in order to convey to its customers what just happened, why, and how they don’t need to worry.
Home Depot needs to re-establish trust with the consumer: apologize, buy flowers, give out free trips to the Bahamas — whatever. Because HD customers will be angry, inconvenienced, and extremely concerned.
If you own HD stock, you should be extremely concerned too, because quite often where there’s a Home Depot, there’s a Lowe’s (LOW) right around the corner.
HD stock is down just over 1% at the time of this writing, but the impact on its reputation alone will cost investors much more than that. Same-store sales will likely take a big hit this month, and that’s a trend that could continue into the winter months if the data breach was as far-reaching and severe as it seems it may have been. Lowe’s is somewhat leveraged with a 0.9 debt/equity ratio, but with $1.1 billion in cash and a little room to leverage itself further, LOW could ramp up its expansion strategy in the wake of this HD headache.
This Home Depot data breach should be hitting HD stock harder than it is. I suspect HD stock will take a hit when its third-quarter earnings report hits the wires in November, if not before. As consumers, we can take solace in the fact that new, more secure methods of financial transactions are on the horizon, proving once again that idioms change with technology.
As of this writing, John Divine did not hold a position in any of the aforementioned securities.
