Side-by-Side Comparison of The Home Depot, Inc. (HD) and Lowe’s Companies, Inc. (LOW)

There are some developments that play into Lowe’s competitive advantage. For example, the company has more leverage than Home Depot and this should improve equity returns over time. In addition, Lowe’s repurchased $3.6 billion of its own shares for the nine-month period ending Nov. 2, compared to $3.3 billion for Home Depot. While more leverage could be dangerous in times of economic distress, it could help Lowe’s in the much anticipated economic recovery.

On the negative side, Lowe’s, according to one analyst, has stores that are at a disadvantage compared to Home Depot as they are situated further away from people. However, this could also be a negative for Home Depot as households in urban areas, such as large cities, are more affluent and outsource a larger portion of their projects.

While Lowe’s is less diversified internationally, it is likely to continue its expansion in Canada and Mexico even after its failed bid for Canada’s largest home improvement retailer, Rona, in 2012. At the same time, Home Depot’s unsuccessful attempt to expand in China cost the company $165 million and loss of reputation in 2012.

Conclusion

Lowe’s and Home Depot, while different in size, are the two largest home improvement retailers in the U.S. Their shares, based on a price to earnings ratio, are overvalued compared to the S&P 500 index. However, based on price to book and PEG, their shares still offer good value for investors.

The similarities between both companies outnumber their differences. For example, in September of 2011, Lowe’s equipped its store employees with iPhones and this move was followed by Home Depot in early 2013. And in appliances, both companies recently introduced the addition of LG (at Lowe’s) and Samsung (at Home Depot) to their product offerings. However, on a relative basis, shares of Lowe’s are less expensive. As such, they would likely catch up with Home Depot in an improving housing picture while also offering a larger margin of safety.

The article Side-by-Side Comparison of Two Home Improvement Retailers originally appeared on Fool.com and is written by Delian Naydenov.

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