Lowes vs Home Depot - updated

In a previous article, we looked at Lowes and HD. In that article, we found that long term prospects bode well for both Lowes and HD. The analysis still remains the same but the price points have changed somewhat and the discount isnt that deep any more.

Home Depot had a few issues to sort out especially the compensation and integrity of management. The departure of Nardelli is welcome news to the share holders of HD. However, it is not clear that the mess that Nardelli created may clear anytime soon. I used to have the Pavlovian habit of going to Home Depot as it is located closer to my home compared to Lowes. The poor customer service and Nardelli behavior have helped kick my Pavlovian habit - I now go to Lowes exclusively.

I like the way Lowes is doing its business - over Chrismas, I was able to find a few interesting toys at Lowes. I am also seeing more traffic at my local Lowes store now than was the case before. This is one micro example but just points to how things have changed in a short time.

First, let us look at the performance of the two stocks over the last three months, six months and a year respectively.

3 month chart

6 month chart

1 year chart

Lowes has done as well or better than Home Depot in each of these periods. The two year and five year charts also point in favor of Lowes.

Having said this, let us look at the fundamentals briefly. Lowes has a trailing P/E of 17.29 and a market cap of 53 billion. The stock is still at a discount to its fair price - although the discount isnt as deep as it once was.

Home Depot has a market cap of 83 billion, a trailing P/E of 15. The stock is at a discount to its fair price but the discount is primarily because of concerns over growth and the management shakeup. Lowes is growing even in a dismal housing market where as Home Depot is stagnant and its year over year sales are down more sharply.

While housing is the main factor affecting both companies, Lowes better execution and closeness to the customers should help it do better than Home Depot in the next five years.