How Home Depot is hammering Lowe's

HD continues to defy trends of other housing-related stocks.

By InvestorPlace Nov 14, 2011 10:01AM
By Jeff Reeves, InvestorPlace.com


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 editor@investorplace.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.



Related Articles

310Comments
Nov 14, 2011 5:46PM
avatar

Lets do a simple test: Thumbs up if Lowes has better service or thumbs down if you believe Home Depot has better service.

 

Nov 14, 2011 2:59PM
avatar
This article doesn't explain in any way, shape, or form why Home Depot is "hammering" Lowe's all it does is explain data regarding the stock prices.
Nov 14, 2011 1:43PM
avatar

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.

Nov 14, 2011 2:36PM
avatar
I liked the title of this article, "How Home Depot is hamming Lowe's". But, the article did NOT live up to it's title. The explanation is the article is like you, Jeff, asking me..."Todd...HOW did that Shelby Mustang beat that (other car) in a race?". In following your method of writing an article, I would answer, "Because it went faster." It's pretty obvious that The Home Depot is beating out Lowe's due to it's financial numbers....but WHY!?!?!?! Get that answer and this would be an informative and interesting article.
Nov 14, 2011 2:09PM
avatar
I must be the odd man out, I prefer Lowes over Home Depot, my experiences with HD have not usually been pleasant ones and the store that I go to always seems not as clean or organized as Lowes.
Nov 14, 2011 5:48PM
avatar

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...?

 

Thank you

Nov 14, 2011 8:41PM
avatar
LOWES by far is the hands down winner! I drive past HD to get to "MY" LOWES. I recently remodeled the entire exterior of my home plus purchased multiple items for the interior. The customer service at "My" LOWES is above and beyond any customer service I have ever received at any retail establishment EVER!!!! I have spent thousands of $$$ in small increments, but you would have thought they were rolling out the red carpet for the big dogs! Always extremely friendly and most importantly, knowledgeable about the products and departments they represented. The paint department even matched a paint color for me from 9 years ago that had been discontinued. Saved me HUGE $$ because I would have had to buy several more gallons @ $40 a pop! And I won't even talk about the "Behrly There" paint from HD. It's total garbage! Valspar rocks...one coat coverage!! Just bought my first fire pit from "My" LOWES yesterday...never had to even lift a box...the guys in the garden center got everything for me and loaded it in my car. GO LOWES!!!
Nov 14, 2011 8:59PM
avatar
This astounds me because I always experience amazing service & selection at Lowe's while Home Depot is awful.
The plant are far superior at Lowes as well: always wonderful resulys.
Nov 14, 2011 6:31PM
avatar
I was really intrigued to read this story because I do TONS of home renovations, and while I shop more often at Home Depot, I think Lowe's frequently has a better stock of the specialty and/or custom items I increasingly need as I become a better renovator.

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.


Nov 14, 2011 8:26PM
avatar
I have spent thousands of $$$ at Home Depot, and they all knew me well (like family).  I was in shopping one day and touched a female employee as part of a joke I was telling to both her and a male floor manager. They both laughed and then I walked away to go about my shopping.  A few days later, I received a call from a police officer saying she was pressing charges against me for touching her.  I was floored by the allegations, as I did not touch her in an inappropriate area. in addition, as I said, a floor manager was present at the time as a witness.  The cop never called me back and I never heard another word (no charges pressed). Because of this, I will never spend another dime in home depot and have shifted all my business to Lowe's.  I still cannot believe this actually happened to me, but, oh well.  I have no problem spending my $$$ somewhere else.  In fact, now that I have switched to Lowe's, I can't believe the difference in their knowledge and customer service compared to home depot. home depot suck's, and every chance I get I am not afraid to express it.  Go Lowe's!  
Nov 14, 2011 1:44PM
avatar
I've always liked to do it yourself but I will say from a customer point of view I'd rather go to lowes. The service at Lowes is much much better than any of the hd locations I have been too.
Nov 14, 2011 4:17PM
avatar

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.

Nov 14, 2011 4:29PM
avatar
I have a spouse that works at Home Depot and they treat their employees like crap.  They don't like to give their full time employees set schedules and the managers and DHs don't treat their associates with respect.  The associates that work and do all the sales have to make up for the brown nosers that go hide and don't pull their load.  Associates that put in for the vacation time that they have earned don't get approved or rejected until shortly before they are set to go on vacation.  They need to treat their associates much better than they do and that will reflect on the entire moral of the stores although since they are cheaper than Lowes they really don't have to care about their empoyees.  
Nov 14, 2011 2:33PM
avatar
Hands down, Home Depot has the worst customer service of any establishment I have EVER done business with.  I refuse to even enter their stores.
Nov 14, 2011 12:42PM
avatar
HD stock is mainly held by Institutional investors who are not inclined to sell or trade for fear of lowering the market value. They have enough volatility to contend to without any further reductions. This does not alter the fact that HD is a poorly managed company - almost all the senior management personnel are GE employees with very little knowledge in retailing. The grass roots employees are mostly inexperienced part time workers receiving slightly above minimum wages. In comparison to their capabilty potential and past history, they are far from being a "gangbuster" co.
Nov 14, 2011 8:47PM
avatar
i am in the landscape design/build business and shop at lowe's at least 3 times weekly .  ALWAYS i am greeted and they have people there to help load me up and get me out of there quickly , it never fails.  i avoid home depot for many reasons.  i have been told that it was not their job to load me unless i was an old person (i'm pretty freakin old)  , their certified nursery professionals have sent customers to me to answer questions knowing i was in the nursery business, i was once accused of trying to rip them off by taking a larger tree than what i paid for (it was the only one they had and i took the tag in with me to be scanned)  the employees act as if they would much rather be at a public catfight than working there. it's always without fail a horrible experience and i leave feeling worse than when i went in.  at lowe's it's just different, they are there to help, if theyhave a new product that might work better than what i am buying they let me know, they always have people available to load and in the case of buying pine straw  my truck is usually loaded by the time i pay for it inside . i ONLY go to HD if lowe's happens to be out of stock on some particular item. how they are hammering lowe's i will never understand
Nov 14, 2011 4:55PM
avatar

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!

Nov 14, 2011 2:34PM
avatar
In my city, HD is the ghost town while Lowes is always busy. I can never find a helpful employee in HD. In Lowes, if the employee can't answer my question, he will try to find someone who can. I'm surprised that there is enough business to keep both stores open but for some reason Menards is building a new store.
Nov 14, 2011 11:12AM
avatar
home improvement stores do better during a recession because people repair instead of sell
Nov 14, 2011 8:49PM
avatar
mary n tn,  you must live in or near kingsport as i do.  lowe's has NEVER disappointed me and with HD i expect to be disappointed before i ever arrive there
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

129
129 rated 1
281
281 rated 2
444
444 rated 3
732
732 rated 4
629
629 rated 5
623
623 rated 6
610
610 rated 7
440
440 rated 8
303
303 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

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.