Home Depot Inc (NYSE:HD) and Walmart Inc (NYSE:WMT) are two of the biggest retail stores in North America. When panic shopping hit during the stock market crash following the pandemic, these two companies reported revenue increases and reached historic high market capitalizations.
Ever since, most analysts believe they’ll continue growing. But which is the better investment between Home Depot vs Walmart stock?
It responded by leveraging its massive real estate footprint and supply chain to provide delivery and pickup services. This one-stop superstore provides anything your family needs, except quality home improvement supplies.
That’s where Home Depot (HD) comes in – not only does it have everything you need for DIY projects, but it’s also branching into more home goods.
The company’s digital strategy helps it stay nimble and compete with rival Lowes (LOW) the same way Walmart does with both Amazon and Target (TGT). Here’s what to expect from each of these retail giants as we move on from the pandemic economy.
Home Depot Stock Benefiting From Digital Strategy
Home Depot has about 2,300 stores throughout North America, and these brick-and-mortar outlets have helped the company generate $38 billion in revenue during the second quarter of 2020. This came out to $2.8 billion earned income, after accounting for operating expenses.
In fact, the home improvement market in general rose 4.4 percent while the rest of the retail industry was reeling from the stay at home orders.
This drove the company’s market cap over $300 billion, with stock prices ranging between $250 and $300.
The company has a 26x P/E ratio, and its $6 annual dividend yield equates to about 2.16 percent for the year.
It has a strong digital presence that includes accepting contactless payments and offering curbside delivery, along with solid ecommerce that helped to increase its revenue.
Looking to the future, Home Depot (HD) is working to expand its product offerings and increase customer traffic with holiday sales.
It’s investing $11 billion into upgrading its existing supply chain infrastructure as well, which it already excels at. This means it’s poised to continue growth, something bullish investors believe it can accomplish.
Can Walmart Pick Up Brands Leaving Amazon?
Walmart runs approximately 11,500 stores in 27 countries around the world, and they’re all pretty much the same.
It created an efficient retail footprint by buying large plots of land and charging other stores like Payless and RadioShack for rent.
It employs over 2.2 million people around the world and beat earnings estimates every quarter in 2020. Now its market cap is over $400 billion, with stock prices hovering between $125 and $150 for the back half of the year.
The company has a 22x P/E ratio and a 1.5 percent annual dividend yield, based on a quarterly payment of $0.54, or $2.16 per year.
It has the scale to dominate any competitor, whether Home Depot or Lowes. Its biggest rival is truly Amazon, whose online marketplace Walmart is emulating. As brands leave Amazon, Walmart is hoping to convince large swathes of customers to migrate to its platform.
It also partnered with delivery services like Postmates to match Amazon’s network of independent contractor drivers. This helps it provide the same delivery speed as its rival and maintain a lead over everyone else. However, panic shopping is over, and Walmart has competition for holiday shopping. Let’s explore the risks of each stock.
Home Depot Has Economic Tailwinds.. & Competition
Although the home improvement category is growing every year, it’s not just Home Depot benefiting from it. Rival Lowes (LOW) (and to a lesser extent, companies like Sherwin Williams and Ace Hardware) is determined to compete on every level.
It’s also attracting competition from home décor and furnishing companies because it’s expanding for the holiday season.
Bearish investors fear Home Depot may be overvalued, and it could deflate in 2021 as government pandemic assistance programs expire and the economy gets slows down.
Still, it’s outperforming the S&P 500 since the market crash, and the push to working from home could continue well into the 2020s.
It was already in a bullish trend in the 2010s prior to the pandemic, so home improvement could continue to see further gains. Still, HD has less growth potential than competitors since it’s already the market leader.
Walmart has similar problems.
Walmart Threatened By Target & Amazon
The pandemic drove people to panic shop at Walmart, but it also cost the company money to sanitize stores and keep employees alive.
Because it’s a discount store, Walmart is virtually recession-resistant, but it’s not necessarily guaranteed to thrive. The competition from the likes of Costco (COST), Target (TGT), and Amazon (AMZN) is going to keep the retailer on its toes and fighting for a possibly smaller consumer market moving forward.
However, it’s used to the competition, and the company makes whatever partnerships it needs to generate revenue. Working conditions are better than those at Amazon, and California lost its battle against Uber (UBER) and Lyft (LYFT) drivers.
This means Walmart can continue leveraging a freelance delivery force to save on operating costs. This is what gave it the lead against other retailers, especially at the onset of the pandemic.
Its biggest risk is being the market leader limits growth potential.
Walmart Vs Home Depot Stock: The Bottom Line
Home Depot and Walmart are the leaders in their respective retail segments. When panic shopping ravaged the country, both stores filled with customers. They minimized losses in brick and mortar while increasing ecommerce sales, and they’re both expanding their product offerings heading into the next few months.
Both companies are strong buys by most analysts’ consensus. Walmart offers more diversification for conservative-minded investors while Home Depot is a bet on economic growth.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.