Home Improvement Value Faceoff: Home Depot vs. Lowe’s

With the recent liquidity crisis in the subprime market, the formerly red hot housing sector has finally started to cool off. Home equity loans are costing significantly more now and future home price appreciation expectations are finally getting back to reality. These factors have caused investors and shoppers to curtail their demand for home improvement retailers.

Home Depot (HD) and Lowe’s (LOW) dominate the home improvement retail sector. Both of these stocks are trading close to their 52-week lows. Interest in these stocks started to pick up on Value Investing News, so I started a poll on September 26th to find out which of these leading home improvement stocks provides a better value.

Here are the results:

Two-thirds of the value investors that took this poll found Lowe’s to be a better value. Surprisingly, only 9 out of the 27 poll takers thought Home Depot’s stock provided a better value.

I actually voted for Home Depot even though I really don’t like Home Depot as a consumer. Home Depot has a lower P/E, P/B, and P/S ratio than Lowe’s. I compared those ratios and more in the table below:

Looking at these key ratios, it is still too close call which of these two home improvement retailer stocks is a better value. On the one hand, Home Depot is cheaper relative to its current revenue and earnings, and it has a much more generous dividend yield. Lowe’s has better margins, growth rates, and lower debt. Either way, I’d still like to see both of these stocks get cheaper before investing.

click to enlarge

Looking at these ratios, which of these two stocks is the better value and why? Share your thoughts in the comments section below.

Full Disclosure: I do not own shares of Home Depot or Lowe’s.

Comments

[realestate.about.com]

A popular program from Lowe's may be enough to tip the scales their way. Realtors® really like the Realtor Benefits Program, and thus are using it to bring customers to Lowe's. Here's the program link:

https:// lowesrealtorbenefits.com/default.asp

[MEXX]

When the numbers are too close to call, do a reality check. You mentioned that you as a consumer don't like Home Depot. Guess what, other people probably feel that way. Don't discount the Customer Experience (think Wal-Mart vs Target or Circuit City vs Best Buy). The Customer experience is often the only point of differentiation between two very similar retailers that carry about 80% of the same products. The other thing, HD by virtue of its size is potentially more exposed to the housing downturn, the down hill ride is steeper for HD, Lowes on the other hand, still has room to grow, is more nimble and can re-tool itself a lot faster. Though I agree with you, either way, I am willing to waited out for bargain basement prices. Be patient, they will come.

[MEXX]

When the numbers are too close to call, do a reality check. You mentioned that you as a consumer don't like Home Depot. Guess what, other people probably feel that way. Don't discount the Customer Experience (think Wal-Mart vs Target or Circuit City vs Best Buy). The Customer experience is often the only point of differentiation between two very similar retailers that carry about 80% of the same products. The other thing, HD by virtue of its size is potentially more exposed to the housing downturn, the down hill ride is steeper for HD, Lowes on the other hand, still has room to grow, is more nimble and can re-tool itself a lot faster. Though I agree with you, either way, I am willing to waited out for bargain basement prices. Be patient, they will come.