Home Depot vs. Lowe s – Does Home Depot Offer Value Now?

Several consumer cyclical stocks are in line to report FY20 and 4Q20 earnings. The largest is Home Depot (NYSE: HD) who reports on Tuesday 23^rd February with a webcast. Home Depot is the world's largest home improvement specialty retailer. It operates nearly 2,300 warehouse-format stores offering more than 30,000 products in-store and 1 million products online in the United States, Canada, and Mexico.

For Home Depot, Finscreener.org's earnings rating is a "Strong Buy" on the back of nearly an 8% increase in earnings estimates in the last three months. Analysts estimate 4Q20 earnings at $2.61 per share and FY20 at $11.79 per share. Home Depot's stock performance has been marginal over the last 12-months, lagging the broader market, as measured by the S&P500 index, by 0.6% but still up 14.8% overall. Finscreener.org has a target price of $306.06, which offers a potential upside return of 9.45% from the last closing price.

The day after Home Depot, investors will hear from another home improvement retailer with Lowe's Companies Inc. (NYSE: LOW) reporting its FY20 and 4Q20 results. Lowe's has a slightly weaker earnings rating of "Buy," with analysts revising up 4Q earnings estimates by 2.56% in the last three months to $1.20 per share. Analysts estimate FY20 earnings per share at $8.73. Unlike Home Depot, Lowe's share price has well outpaced the broader market over the last 12-months, returning investors 43.83% compared to the S&P500's 15.37% return over the same period. Finscreener.org shows an analyst price target for Lowe's $182.76, or just 2.94% of upside potential from the last closing price.

Investors will be keenly watching Home Depot and focusing on the company's 2021 forecast to decide if there are still value opportunities in the stock. Lowe's stock outpaced Home Depot in 2020 mainly on the back of Lowe's double-digit earnings surprises in 1Q and 2Q20 of 37.21% and 23.76%, respectively. On the other hand, Home Depot disappointed investors at the start of 2020 with the 7.96% earnings miss in 1Q relative to analysts' expectations.

Home Depot's lackluster stock performance over the last 12 months could present an investment opportunity if management can convince investors 2021 will be a good year and value in the stock. Home Depot is not overly expensive, with a forward PE ratio of 22.45x versus Lowe's at 18.95x. Home Depot's 3-year revenue growth of 0.61% is in line with Lowe's 0.71% performance, and profitability, as measured by EBITDA margins of 16%, is superior to Lowe's at 11.2%. Finally, for dividend investors, Home Depot has a superior absolute dividend rate and similar dividend yield at $6 per share and 2.2%, respectively, against Lowe's at $1.35 per share and 2.4% yield. (For more on dividends, see: Growth vs. Value Stocks – Do Dividends Matter?)

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.