Home Depot Vs Lowe’s Stock: Which Is Best?

Home Depot Inc (NYSE:HD) and Lowe’s Companies Inc (NYSE:LOW) are the biggest hardware and home improvement retailers in North America. These companies saw their stock prices rise in 2020 following the global pandemic crash as customers rushed to buy essential tools and hardware.

Working and going to school from home inspired droves of people to remodel their homes, and even professional contractors saw business increase. Their focuses on digital and planned holiday expansions also play to their strengths. But which is the better buy between Home Depot vs Lowe’s stock?

To answer that we examine the companies’ balance sheets, their holiday strategies, and growth plans for 2021 and beyond.

As the world shifts to online first, each saw a bump, but they also have strong brick-and-mortar presences They both pay dividends and are likely to remain stable over the next five years. 

Home Depot Digital Strategy Paying Dividends

Home Depot second quarter results showed $38.1 billion in sales, which is a 23.4 percent year-over-year increase.

This gave the company net earnings of $4.3 billion, or $4.02 per diluted share, an increase from $3.5 billion in the same quarter of the previous year.

This happened at a time when other retailers are reeling from the effects of the virus outbreak and means the company is well-positioned to outdo its $11.2 billion annual earnings for the 2019 fiscal year.

Holiday sales are going to be competitive, not only between Home Depot and rival Lowes, but between both brands and the broader retail market.

The company went ahead with Black Friday deals starting November 6 in an aggressive marketing campaign it hopes will bring in more revenue. It has a respectable digital footprint too, supporting a broad range of contactless payment and delivery options.

The company is still trading over 20x forward earnings, which means it’s possibly overweight. It pays a healthy dividend yield of $6 per year paid quarterly and increased every year throughout the 2010s.

This has some shareholders pleased. More bearish investors point to its inability to reach and sustain a $300 billion market cap so far in 2020, and it appears to be hitting a price ceiling that’s leading investors to examine Lowe’s as a better option.

Should You Invest in Lowe’s?

Like Home Depot, Lowe’s recovered from the market dip to experience an all-time high market capitalization.

It’s trading in the range of $150 to $200 after crashing to a low of $60 per share. Its fall earnings report showed net earnings of $2.8 billion, or $3.74 per diluted share for the quarter, off $27.3 billion in sales.

This is an increase over the previous year’s quarterly total of $1.7 billion, or $2.14 per share, off $21.0 billion in the same quarter of 2019. It should easily surpass 2019’s fiscal year total of $72.1 billion in sales.

The company steadily grew throughout the 2010s and is continuing to expand in the 2020s. It also focuses on digital sales and is expanding its products and services during the holiday season. You can now buy appliances, get a Christmas tree delivered, and more.

The company also heavily invested in building its professional customer base to muscle in on Home Depot’s market. It pays a quarterly dividend of $0.60 as of its November payout, giving it a 1.49 percent annual yield at $2.40.

These archrivals both killed the game in 2020 while remaining competitive with each other. But they do still face stiff competition, as they attempt to muscle in on other sales that customers may traditionally visit a Walmart (WMT), Ikea, or Bed Bath and Beyond (BBBY) for.

Nevertheless, there are risks associated with the hardware industry that investors need to keep a close eye on.

Home Depot Competition Hotting Up

Home Depot’s biggest risk is expanding further than sales can sustain. It’s at a historic high market capitalization while the broader market (especially retail) is contracting.

It’s also investing $11 billion over the next few years in upgrades to improve its ecommerce and supply chain.

These expensive digital efforts need to pay off with continued sales increases, and it’s not yet clear if the market will continue leaning on home improvement stores.

Much of Home Depot’s sales boosts came from other retailers closing while it remained an essential business. A lot of the everyday items being purchased from store shelves were unavailable in other stores that were closed.

Reopening for the holiday season is forcing every business to compete, and it will not be easy for the store to maintain its sales. Of course, Lowe’s faces the same issue.

Dangers of Buying Lowe’s

Lowe’s also experienced a record high market capitalization in 2020, and it failed to maintain this peak, instead circling it for the past several quarters.

CEO Marvin Ellison recognizes customers are buying a variety of new things and stocked shelves accordingly, but again, the holiday season competition will be fierce from other retailers.

Municipal lockdown orders are gone from most retailers around the country, and Lowe’s no longer has that inside track.

The holiday season results will tell whether the company can leverage its recent gains into sustainable growth.

Its investments in digital efforts should pay off and keep it competitive with both Home Depot and other hardware stores and general retailers.

Lowe’s vs Home Depot Stock: The Bottom Line

Both Home Depot and Lowe’s gained buzz in 2020 for increasing revenues when other businesses in the sector were floundering.

However, that temporary boost is gone, and both stores are gearing up for a competitive holiday season. Each of them has a solid omnichannel strategy that includes a strong digital presence that should keep them profitable. The only real question is how much they can grow.

Both companies pay a healthy dividend, but Lowe’s has more room to grow. Regardless of which you put in your portfolio, they’re likely to continue earning their keep for at least another 10 years.

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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.