How Home Depot is hammering Lowe's
HD continues to defy trends of other housing-related stocks.
When you think about companies that are in rough shape after the economic downturn, most of the big names are related to the meltdown in the real-estate market. From banks plagued by bad mortgages like Bank of America (BAC) to builders like Lennar (LEN), the housing crash hurt a host of big-name businesses nationwide.
But you might be surprised to learn that Home Depot (HD) is thriving. While many banks and builders crashed and burned, the home improvement retailer held firm during the worst of the downturn and has rebounded strongly as of late. HD will report its third-quarter profits Tuesday, and many analysts expect too see impressive numbers yet again.
Post continues below video:
So what gives? Why is it that a volatile stock market, high unemployment and a harsh real-estate market have failed to shake Home Depot -- even as its peers suffer?
Here are three big reasons explaining the success of Home Depot:
Investors believe in Home Depot. As mentioned, many housing-related stocks have fallen and fallen hard. But not Home Depot. B of A is down almost 90% in the past five years, Lennar is down more than 60%, and top HD competitor Lowe's (LOW) is down 20%. Home Depot actually is sitting on a modest gain in stock price across the same five years. Even the broader S&P 500 Index has a five-year return in the red, showing that HD stock has not just outperformed housing stocks but has beaten the entire market.
Booming balance sheet. Home Depot posted just a single quarterly loss across the entire recession and has rebounded strongly in the past two years. Fiscal 2011 earnings were up almost 50% above 2009 numbers, and the company has posted year-over-year profit increases for seven consecutive quarters. Meanwhile, top competitor Lowe's just reported earnings this morning that were pretty ugly -- a 44% slump in third-quarter profit, thanks to store closings and discontinued projects offsetting an overall increase in sales. Lowe's cut its 2011 full-year outlook as a result. Lowe's adjusted results did beat expectations, though, and the stock is up almost 2% today.
HD earnings have been attractive on their own, but considering how bad No. 2 Lowe's has been hurting, it makes Home Depot look all that more impressive.
More growth to come: Fiscal 2012 earnings projections show gains of 70% above recession-era lows, as well as earnings per share 18% above this year's levels. Analysts are tracking five-year annualized growth of 13.5% for Home Depot, indicating this is part of a long-term growth trend. While lots of companies are recovering and growing, too, they just can't keep up with Home Depot.
There are plenty of other signs of strength at Home Depot, too. The company has drawn down $3 billion in debt, and its total debt service has a relatively cheap blended rate of just 5.6%. The 2.6% dividend beats Lowe's 2.4% and the average 2.3% dividend yield among all S&P 500 stocks.
It might seem counterintuitive to think that the nation's biggest home improvement retailer can be going like gangbusters even while the housing market remains troubled. But a look at past numbers clearly shows this is the case -- and Tuesday's Home Depot earnings report will likely reinforce the trend.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
Lets do a simple test: Thumbs up if Lowes has better service or thumbs down if you believe Home Depot has better service.
Amazing. The market rewards incompetence. WHENEVER I go to my local Home Depot, it is out of things, claims some things that are carried are season, but a short drive to Lowes and there it is. Can't find help that knows anything. Won't answer phones well, transfers of calls to the particular department take forever, I mean 10, 15 minutes. And the store is rundown. The Lowes is clean, quick to answer and help. I would NOT put my money on Home Depot. Sorry.
Stop fool with this matter. No body right or Wrong.
There is nothing we can do about it. How about let's do this:
I shop at Home Depot, let me shop there, you shop at Lowe's let you shop there.
If Home Depot out of business I'll see you at Lowe's or if Lowe's is out of business you'll
see me at Home Depot.. How's that...?
The plant are far superior at Lowes as well: always wonderful resulys.
Disappointingly, there's not ONE SINGLE WORD in this story about WHY Home Depot is performing better than Lowe's and other home improvement chains. All it does is site stock trends. Even in the "three big reasons" there aren't any REASONS. Is it HDs lines of products for people without many do-it-yourself skills? How about customer service? Could it be explained through employee or customer satisfaction ratings? Could it be explained by their locations being positioned more conveniently to "regular" retail shopping options?
All the stock and growth percentages used in the story are the RESULTS of HD doing better than its competitors... not explanations (or even theories!) of WHY HD is performing better than its competition. I wish this story had lived up to its headline.
Really enjoy some of the reply's to this Article that does not get to the truth as to why HD may be doing better than Lowe's or any other home improvement store in the US. I was an associate and a supervisor for HD for about 2 years, yes at times customer service is going to suck, I think you can find the same for any store, especially when your management team sucks, bad attitudes are generated from them. As for the Article, the reason is because they hide numbers, and are only hiring part time employees and working them full time hours, this enables them to not have to spend for employee benefits, another thing is when they get good employee's to work for them, ones that take the job serious and want to be professional and work when they are supposed to work, they have to promote these people and then when the cost to keep good employee's outweighs the managements ability to track and effect the numbers by sending nearly the whole store home because there sales numbers are less than the hours worked, they do this so the management team can get their weekly bonuses while those workers having trouble making ends meet don't get a 40 hour week. HUH say what you want, customer service, prices, what the store looks like, hell maybe you don't like orange, all in all they are just bringing harm to the economy just like our politicians. It is the which hand is it in trick, it is in neither.
Home depot may be "Hammering" Lowe's...but lowe's has a much better selection, and variety. Home Depot has bare bones selections when it comes to hardware, and tools, and fixtures...it's bad.
Lowe's, has a good variety, reasonable prices, and their home and garden department can't be beat by other chain stores.
I have watched many Lowe's close their doors, it's too bad for the consumer....Because when it comes to the customer..Lowes beats the heck out of Home dippo!
Copyright © 2014 Microsoft. All rights reserved.
The company is scrambling to protect its equities arm, which could face declining volume and revenue as competitors close the gap.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.