Better Buy: Home Depot vs. Lowe’s

While the economy is looking a little worrying now, it pays to be a few years ahead. Take the home improvement market, which is expected to grow nearly 5% through 2028. The industry’s two goliaths — and longtime rivals — are home depot (HD -2.09%) and Lowe’s company (LOW -1.39%).

Read on to see which of these two home improvement behemoths is more compelling in today’s market.

1. Home Depot is in full swing

Founded in 1978, Home Depot transformed the home improvement store as we know it. Today it is the world’s largest home improvement retail chain, operates more than 2,300 stores across North America, employs half a million people and had sales of over $151 billion last year.

When founders Bernie Marcus and Arthur Blank opened their first Home Depot stores in Atlanta, Georgia, they realized their vision: a one-stop shop for everything home improvement. With around 60,000 square meters each and a much larger variety of products, the first Home Depot stores immediately eclipsed the existing hardware stores of the 1970s.

Today, an average Home Depot store spans 105,000 square feet and offers over 35,000 products for sale. And Home Depot claims to offer more than 1 million products online through its e-commerce store. The company also offers home remodeling and other services and boasts “the industry’s largest installer for Do-It-For-Me customers.”

Home Depot has shown exceptional strength this year, delivering its highest-ever quarterly sales and earnings in the second quarter. According to CEO Ted Decker, “Our performance reflects continued strong demand for home improvement projects.” The company reported record sales of $43.8 billion, up 6.5% from the same period last year. For the full year, Home Depot expects total sales to grow about 3% over 2021 numbers, with an operating margin of about 15.4%.

2. Lowe’s delivers strong sales growth

More than 50 years before Home Depot opened its doors, Lowe’s began as a general store in a small town in North Carolina. In addition to sewing supplies, harnesses and snuff, LS Lowe’s original 1921 shop also sold hardware and building supplies. Today, Lowe’s serves approximately 19 million customers a week in its nearly 2,200 stores and the company had sales of over $96 billion in fiscal 2021.

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However, it was not until 1946 that Lowe’s became strictly a hardware store. At this point, the company adjusted its inventory to a wave of construction after the Second World War. Lowe’s went public in 1961 and has since grown into one of the world’s largest home improvement retail chains. Like Home Depot, it also operates in the United States, Canada, and Mexico.

Lowe's associate helps a shopper at the garden center with flowers.

Image source: Lowes.

Lowe’s joined the Metaverse revolution over the summer, unveiling its virtual reality platform, Lowe’s Open Builder. This new tool allows shoppers to download digital versions of Lowe’s products – such as home décor and furniture products – and then preview those items in their homes or yards with augmented reality. With Lowe’s Open Builder, customers can get a realistic idea of ​​what items will look like before making purchasing decisions.

Lowe’s hasn’t fared as well as Home Depot this year, posting a slight year-over-year sales decline in the second quarter. Although DIY sales were lower than expected, Lowe’s made up for it with a 13% increase in the “pro” customer category – ie sales to contractors, professional remodelers and facility maintenance companies. Looking ahead, CEO Marvin R. Ellison remains steadfast in the company’s ability to capture further market share in the home improvement market.

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What’s the better buy?

To assess whether Home Depot or Lowe’s is a better buy, let’s look at current market cap, price-to-earnings multiples, and dividend yields.

Metric home depot lowes
market capitalization $296.7 billion $123.5 billion
price-earnings ratio 17.8 15.7
dividend yield 2.62% 2.11%

Source: eTrade

On the one hand, Lowe’s has a slightly lower price-to-earnings ratio than Home Depot — at 15.7 versus 17.8. On the other hand, Home Depot offers shareholders a higher dividend yield and is having a stellar year.

Given the current favorable momentum, Home Depot makes a better buy than Lowe’s right now. However, as the two biggest contenders in a market expected to hit over $1 trillion by the end of 2028, these two home improvement stocks show promise over the long term.

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