The Home Depot, Inc. (HD) Paints A Pretty Picture: Lowe’s Companies, Inc. (LOW), Sherwin-Williams Company (SHW)

Google News is showing reports that home prices capped off 2012 with the biggest rise in six years. The economy finally  seems to be slowly turning around and headed in a positive direction. Some earnings from home improvement stores were disappointing in the fourth quarter, yet one company showed very positive results.

Lowe’s Companies, Inc. (NYSE:LOW) seemed to benefit from the aftermath of Hurricane Sandy, and appears to be able to maintain pricing as gross margins remained relatively flat. Despite better than expected earnings, it seems as though disappointing guidance for 2013 either matched or trumped fourth quarter earnings. The company’s P/E is 21.3, or 1.5 below the industry average. Although Lowe’s revenues decreased slightly in the fourth quarter, net income rose approximately 31%. The company does seem fairly priced, with a 5.9% Free Cash Flow (FCF) yield.

With earnings rising and lower guidance moving forward, it is impressive how closely related Lowe’s is to its largest competitor. To me, the most impressive accomplishment of Lowe’s this quarter was the ability to maintain its gross margins. The company’s largest competitor is more than twice its size and has far more distribution power. Normally when The Home Depot, Inc. (NYSE:HD) is performing well, Lowe’s suffers, and vice versa.

The Home Depot, Inc. (NYSE:HD) posted excellent results this past quarter, including a 34% increase in its quarterly dividend. Investors seeking dividend consistency should look no further. This marks the 104th consecutive quarterly dividend by the company, and it just authorized a $17 billion buyback through 2015. The Home Depot, Inc. (NYSE:HD) saw same-store-sales increase by approximately 7%, and net earnings were 29% higher than the year-ago quarter. Although Lowe’s FCF yield is nearly 1% higher, Home Depot’s earnings yield is 3% higher than Lowe’s. Surprisingly, Home Depot’s P/E is 22.7, 1.4 higher than Lowe’s.

Despite The Home Depot, Inc. (NYSE:HD) having emphasized its paint departments in recent years, competitor Sherwin-Williams Company (NYSE:SHW) still holds an estimated market share of 30% and is the clear leader in the domestic paint market. Sherwin Williams is the smallest of these three companies, showing a market cap of just over $16 billion and 3,400 company-owned stores. The Home Depot, Inc. (NYSE:HD) and Lowe’s have approximately $101 billion and $41.6 billion market caps, respectively. With an earnings yield of just 3.6%, the company also shows a low FCF yield of 4.4%.