HD vs. LOW: Which is the Better Bet in the Home Improvement Space?

Home Depot (HD) and Lowe's (LOW), the leading home improvement retailers, reported Q1 fiscal 2025 sales of $39.9B (+9.4% YOY) and $20.9B (-1.7% YOY) respectively, with HD maintaining its market leadership and focus on Pro customers. While HD's EPS is projected to decline 1.3% in fiscal 2025, Lowe's EPS is expected to rise 2.4%; LOW appears more attractively valued with greater upside potential due to its ongoing transformation and strategic investments in digital and Pro segments, despite HD's larger scale and higher dividend yield of 2.64% compared to LOW's 2.17%.

Analysis

Home Depot (HD) and Lowe’s Companies (LOW) are the dominant forces in the $1-trillion U.S. home improvement market, with HD holding approximately 25% market share and LOW possessing 17-18%. In the first quarter of fiscal 2025, HD reported a notable 9.4% year-over-year sales increase to $39.9 billion, despite a minor 0.3% comparable sales decline, showcasing strength in key categories like appliances, electrical, and building materials, and benefiting from its expanding SRS division which targets an estimated $50 billion in deferred home improvement spending. HD's digital sales also saw robust growth, increasing 8% year-over-year, and the company is strategically managing tariff headwinds with over 50% of its sourcing based in the United States. Conversely, Lowe’s posted first-quarter fiscal 2025 sales of $20.9 billion, alongside a 1.7% comparable sales decline, which was attributed to unfavorable spring weather and a reduction in big-ticket DIY purchases; however, its Professional (Pro) segment experienced mid-single-digit comparable sales growth. LOW is actively enhancing its business model through significant investments in digital infrastructure, targeted Pro initiatives such as MyLowe’s Pro Rewards, and strategic acquisitions like Artisan Design Group. For fiscal 2025, Home Depot’s sales are projected to grow 3.1%, but its EPS is expected to decline by 1.3% to $15.04. In contrast, Lowe’s sales are anticipated to increase by 0.7%, with its EPS forecasted to rise by 2.4% to $12.29. Both companies have seen recent upward revisions to their EPS estimates and project similar sales growth and approximately 9.2% EPS growth for fiscal 2026. Over the past year, HD's stock performance (-1.8%) slightly edged out LOW's (-7.3%), although both significantly lagged the S&P 500. From a valuation standpoint, HD trades at a premium forward price-to-earnings (P/E) multiple of 22.31x, which is above its 5-year median, reflecting its strong alignment with Pro customers. Lowe’s, however, trades at a more modest 16.58x P/E, below its 5-year median, suggesting a potentially more attractive valuation. Regarding dividends, HD offers a 2.64% yield with a 10.6% five-year dividend growth rate, while LOW provides a 2.17% yield but boasts a higher 19.1% five-year dividend growth rate and a lower payout ratio (39% for LOW versus 61% for HD), indicating greater capacity for future dividend increases. The article ultimately posits that Lowe’s presents a more compelling investment opportunity, citing its favorable valuation, ongoing transformative efforts, and underappreciated growth levers.

Key Decisions for Investors

• Investors should consider Lowe's (LOW) for its more attractive valuation relative to Home Depot (HD), its projected EPS growth in fiscal 2025, and the potential upside from its ongoing strategic transformation, despite recent sales headwinds.
• While Home Depot (HD) offers market leadership and a slightly higher current dividend yield, its premium valuation and anticipated near-term earnings per share decline may limit its relative appeal for value-oriented investors.
• It is prudent to monitor Lowe's progress in its Pro segment and digital initiatives, as continued execution could drive significant value and potentially make it a more compelling investment compared to Home Depot in the current environment.