Home Depot vs. Lowe's: Which Home Improvement Stock Has Better Upside?

Home Depot (HD) and Lowe's (LOW) are navigating a challenging home improvement retail market marked by high interest rates and subdued housing turnover, with each charting distinct paths. Home Depot maintains a competitive edge through its scale, strong Pro segment relationships, and strategic acquisitions like SRS Distribution, which has driven its shares up 12.2% over the past year and projects 3.1% sales growth for FY25. Lowe's is executing a multi-year transformation focusing on Pro expansion and digital growth, but its heavier exposure to macro-sensitive DIY categories and tariff risks has resulted in a more modest 4.4% stock gain and lower projected sales growth of 0.8% for FY25. While both are Zacks Rank #3 (Hold), HD is currently viewed as the stronger investment due to its established market position and strategic execution.

Analysis

The U.S. home improvement sector is navigating significant headwinds from high interest rates and subdued housing turnover, leading to distinct strategic positioning between its two leaders, The Home Depot (HD) and Lowe’s (LOW). Home Depot is leveraging its scale and dominant position in the professional (Pro) segment, reinforced by the strategic acquisition of SRS Distribution, to maintain market leadership. This strategy has contributed to a 12.2% year-over-year stock gain and a fiscal 2025 sales growth forecast of 3.1%, although EPS is expected to decline by 1.4%. The company's diversified supply chain, with over half of purchases sourced domestically, provides a buffer against geopolitical tariff risks. In contrast, Lowe's is in the midst of a multi-year transformation aimed at capturing more Pro market share and accelerating digital growth, evidenced by a 6% YoY increase in Q1 online sales. However, its greater exposure to the macro-sensitive DIY category resulted in a 1.7% comparable sales decline in Q1 and a more modest 4.4% annual stock performance. While Lowe’s projects 2.4% EPS growth for fiscal 2025, its sales are only expected to rise 0.8%, and its 20% purchase volume from China creates notable tariff exposure. From a valuation perspective, Home Depot commands a premium with a forward P/S multiple of 2.29, compared to Lowe's at 1.57, reflecting its perceived stability and stronger market execution.

Key Decisions for Investors

• Given Home Depot's superior stock performance and defensive positioning through its strong Pro segment and resilient supply chain, investors may favor it as a more stable holding in the current challenging macroeconomic climate, despite its higher valuation.
• For Lowe's, investors should closely monitor execution on its transformation strategy, particularly progress in Pro penetration and digital initiatives, which must successfully offset the persistent weakness in its core DIY segment and mitigate potential tariff-related margin pressure.
• Monitor key macroeconomic indicators, such as interest rates and housing market activity, as a normalization could unlock significant pent-up demand for big-ticket remodeling, serving as a primary catalyst for both companies.
• Investors should be cautious of near-term risks for both retailers, including margin pressure from rising costs and increased inventory levels, which could impact profitability if consumer spending slows further.