Lowe’s vs Home Depot: Which Home Improvement Stock Is Best?

The trend of home improvement projects has been winding down for a few years now, but homeowners are still interested in do-it-yourself upgrades and remodeling.

That has led some analysts to become optimistic about the long-term prospects for major home improvement stocks, which operate in a market that is estimated to grow at a CAGR of 6% until 2032.

The long-term growth potential of the home improvement market suggests there is tremendous opportunity for leading retailers like Lowe’s Companies, Inc. (NYSE:LOW) and The Home Depot, Inc. (NYSE:HD) to drive higher returns for shareholders, but which one is the better bet?

Lowe’s Financials Slipping But PRO Focus May Lead to U-Turn

Lowe’s is one of the biggest home improvement retailers, offering contractors and individual homeowners a vast array of equipment, supplies, and services.

Among other items, Lowe’s product selection includes building materials, power tools, home appliances, furniture, lighting, plumbing, electrical, and gardening supplies.

The company has been growing its footprint steadily, but that hasn’t necessarily translated to the financials. Total sales for the last reported quarter came in at $21.4 billion, compared to $22.3 billion in the prior-year quarter.

Comparable sales for the quarter fell by 4.1% as a result of the drop in big-ticket discretionary spending by DIY customers, but that was partially offset by positive comparable sales in the e-commerce and Pro divisions. Lowe’s revenues declined at a 3.3% CAGR over the past three years.

Customers in the DIY segment have shown a clear reluctance to spend big money on renovations and that has directly impacted the revenues of the home improvement store chain.

To offset the slide in financials, Lowe’s has followed an old but proven tactic to directed in its aim to grow market share and create a competitive edge.

For example, in FY 2020, Lowe’s launched its Total Home strategy as a comprehensive solution for Pro and DIY customers. The objective was to position the company as a one-stop shop for every home construction and improvement need.  

The Total Home strategy encompasses drive Pro penetration, accelerating online business, expanding installation services, driving localization, and elevating assortment.

Lowe’s is still refining and further developing the Pro segment to improve market penetration with initiatives that include increasing Pro brands and offer more market-specific products that comply with local codes in specific geographical regions.

Lowe’s stock has surged by more than 400% over the past ten years. Shares are currently trading at 22x PE ratio, which is lower than Home Depot but higher than the industry median.

The market capitalization has increased to nearly $155 billion, and when viewed through the lens of cash flows that is too steep a premium in the eyes of Wall Street analysts who forecast a 14.6% correction.

The Home Depot

Like Lowe’s, Home Depot has also been impacted by muted home improvement spending as evidenced by management reporting sales of $36.4 billion for the first quarter of fiscal 2024, a decrease of 2.3% from the first quarter of fiscal 2023.

Comparable sales for Q1 2024 declined by 2.8% but, in spite of that, revenue climbed at a CAGR of 2.4% over the past three years.

One thing Home Depot has continued to do well is keep customers happy and remain innovative, whether that’s products, store environments, or simply services. The combination has been a winner for Home Depot and kept it at the top of the pile.

One of Home Depot’s most important long-term strategies is catering to the professional contractor segment, an area that is expected to realize tremendous growth. Indeed, management has launched a diversified mix of services, products, and loyalty programs for professional customers to boost both retention and lifetime value.

Home Depot stock has gained more than 340% over the past decade and is currently trading at a 27x price-to-earnings ratio, well above the industry average.

Analysts see downside to $394 per share if the consensus view is proven accurate.

Lowe’s vs Home Depot Stock Which Is Best? 

While both Lowe’s and Home Depot have downside risk to consensus analysts forecasts, Lowe’s appears to have a higher margin of safety at this time.

There is cutthroat competition in the home improvement market, and Home Depot presents a formidable challenge for Lowe’s. For the moment, Home Depot is larger in terms of total market share, and it has a more extensive network of stores, but Lowe’s has been relentless in directing its efforts toward reducing that gap.

Like Lowe’s and the rest of the home improvement industry, Home Depot has fallen on hard times since the 2020-21 boom period. Sales have been in a slump alongside those of industry peers.

To compensate for the reduced demand, both Home Depot and Lowe’s are building their product portfolios for professional contractors.

Lowe’s has been ramping up its presence across digital platforms to meet accelerated demand for online shopping. It has also placed an emphasis on supply chain efficiency and inventory management systems in response to the supply chain disruptions that crippled the economy in recent years. 

So far, Home Depot has kept its place as the industry leader through its substantial share of the home improvement market, but Lowe’s is maturing at an impressive pace relative to other contenders.

Lowe’s is expected to hold its position against most other competitors, but there are a variety of headwinds to consider. Examples include high interest rates and price increases left over from elevated inflation in 2022 and 2023. These challenges may continue to stifle DIY renovation projects, which makes the company’s overall outlook a bit less promising in terms of growth.

Investors looking to add home improvement stock to their portfolios tend to prefer Home Depot over Lowe’s, and analysts agree. Out of 29 analysts covering Home Depot, 16 have rated it as a “Buy.” For Lowe’s, 18 out of 31 analysts have rated the stock as a “Hold.” 

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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.