Lowe’s has made major strides in posting same-store sales and margins closer to Home Depot’s level.


Feb 24, 2022


The market rewarded former laggard Lowe’s  LOW+0.86%    and not its rival Home Depot following earnings reports this past week from both retailers. It was right to do so.

Lowe’s and Home Depot  HD-0.26%    each delivered better-than-expected quarterly results, but Home Depot offered a more cautious tone about the year ahead. Lowe’s, in contrast, raised its guidance a couple of months after providing its initial full-year outlook. Home Depot traded lower, while Lowe’s climbed.

Lowe’s, at $219.18 a share, is no longer the slacker brother of the pair. While previous management teams failed to catch up to Home Depot, that dynamic began to change when CEO Marvin Ellison took the reins of Lowe’s in 2018. Since then, the company has made major strides in posting same-store sales and margins closer to Home Depot’s level.

Lowe’s strong execution during the pandemic showed that its turnaround is truly working. And that improvement can provide a boost now that things are—however fitfully—returning to normal.

“The revenue growth we saw in 2020 and 2021 simply can’t go on; consumer income isn’t growing as rapidly as these sales, and at some point they will normalize,” says Edward Jones analyst Brian Yarbrough. “In a slower sales environment, Lowe’s still has a lot of self-help levers to pull for earnings growth. There’s still a lot of low-hanging fruit.”

While Home Depot, at $316.65 a share, is a well-oiled machine operating near peak margins, Lowe’s can keep playing catch-up: from gains among construction pros (Home Depot’s longtime domain) to a newly announced partnership with Instacart.

Those improvements can help fuel growth at a time when home-improvement retailers are facing difficult comparisons. Not only is the Covid threat seemingly winding down, leading to more spending away from home, but we’ll soon lap one year since the last government stimulus checks were mailed.

We argued much the same last spring. Lowe’s stock has climbed nearly 40% since that article ran, but the catalysts are still in place. “People continue to be surprised by the momentum in the [home-improvement] businesses, but it has been very consistent,” says Gordon Haskett analyst Chuck Grom. He has a Buy rating and a $275 price target on Lowe’s.

Moreover, trading at 16.4 times forward earnings, Lowe’s is cheaper than Home Depot, at 19.8 times.

That’s not to say investors should count Home Depot out of the running. It will benefit from the same trends as Lowe’s, and its best-in-class operations haven’t wavered.

Both stocks may not do much, near-term. Investors will be waiting for their next quarterly updates in May, when we’ll also have more data about how housing fared during the crucial spring selling season. But more gains do seem attainable.