Shares of Lowe's (LOW) took off over 6% after reporting third quarter earnings Monday morning. The second largest home improvement retailer saw shares pass the $33.63 mark, which was its previous highest closing price of the last fifty two weeks. With a market capitalization of $38.91 billion, the company is the little brother to much larger home improvement retailer Home Depot (HD), who sports a capitalization of $93.55 billion. However, with today's share price run-up, shares of Lowe's trade cheaper than Home Depot going forward.
Here is a comparison between the two large retailers. Earnings per share estimates are from Yahoo Finance.
|52 Week Share Range||$22.39-$33.63||$36.41-$64.44|
|Market Capitalization||$38.91 billion||$93.5 billion|
|# of Stores||1750||2250|
|Current EPS/ Price to Earnings||$1.66/20.6x||$3.03/20.8x|
|Forward EPS/ Price to Earnings||$2.03/16.8x||$3.46/18.2x|
I posted an article about Lowe's second quarter earnings miss that recommended buying Home Depot shares over Lowe's. I also pointed out that investors could buy the Powershares Dynamic Building and Construction ETF (PKB) to get exposure to both. Since that time, shares of all three are up. I have to now turn and recommend Lowe's as the buy here, as I think the company trades at a cheaper valuation, offers the better dividend, and has more room for store expansion.
Both home improvement retailers saw increases in their shares from the impact of Hurricane Sandy on the east coast. Shares have also seen improvements as the housing market seems to be recovering. Both companies see shares at or above fifty two week highs from these bullish trends. Both companies are also buying back large amounts of shares and raising dividends to return money back to shareholders. Both companies are long term bets on the United States economy.
In the third quarter, Lowe's net earnings jumped 76% to $396 million. Diluted earnings per share were up 94% to $0.35. Total net sales for the third quarter were $12.07 billion. Comparable same store sales rose 1.8% for the three month period. In the quarter, Lowe's bought back 29.6 million shares of its company stock, valued at $850 million. The company sees earnings per share of $1.64 for the fiscal year.
With the all important holiday shopping season beginning, both retailers could continue their impressive 2012 climbs. On pullbacks or down market days, I would recommend buying either company, but favor Lowe's at current levels. With improved financial results for the year, Lowe's may begin to aggressively expand domestically and internationally.