Home Depot vs. Lowe's: Which is the Best Investment as Q2 Results Approach?

Home Depot (HD) and Lowe's (LOW) are set to report Q2 earnings next week, with both stocks showing recent momentum despite earlier tariff headwinds. HD is projected for 5% sales growth to $45.51B and 1% EPS growth, while LOW anticipates 2% sales growth to $23.99B and 3% EPS growth. Home Depot appears better insulated from tariffs due to its diversified, U.S.-centric supply chain, contrasting with Lowe's greater import reliance, though LOW is actively mitigating these risks. Investors are weighing Lowe's valuation discount (20.5x forward earnings vs. HD's 26.6x) against Home Depot's higher dividend yield (2.3% vs. 1.9%), making these Q2 results critical for assessing their resilience to tariffs and sustaining recent share performance.

Analysis

Home Depot (HD) and Lowe's (LOW) are approaching their Q2 earnings reports with considerable stock momentum, having risen over 8% and 13% respectively in the last month, recovering from earlier tariff-related pressures. The upcoming results are a key test of their resilience. Expectations point to stronger top-line growth for Home Depot, with sales projected to increase 5% to $45.51 billion, versus a 2% rise to $23.99 billion for Lowe's. Conversely, Lowe's is forecast to deliver slightly better bottom-line growth, with EPS expected to climb 3% to $4.24 compared to a 1% increase for Home Depot to $4.71. Strategically, Home Depot appears better insulated from trade risks due to its diversified supply chain, where over 50% of products are sourced from the U.S. and no single foreign country exceeds 10% of sourcing. Lowe's is more exposed but is actively mitigating this through supply chain restructuring and product redesign. This operational risk at Lowe's is offset by a more attractive valuation, with its stock trading at 20.5x forward earnings, a discount to both its industry and Home Depot's 26.6x. Home Depot, however, offers a higher dividend yield at 2.3% versus Lowe's 1.9%, creating a clear trade-off between perceived safety and value.

Key Decisions for Investors

• Investors must decide between Home Depot's perceived operational safety, driven by its resilient U.S.-centric supply chain and higher 2.3% dividend yield, versus Lowe's more attractive valuation at a 20.5x forward P/E.
• The upcoming Q2 earnings and, more critically, forward guidance on tariff impacts and consumer demand will be the primary catalyst for both stocks, making it prudent to monitor these releases closely before adjusting positions.
• For those considering Lowe's, pay specific attention to management's commentary on the success of its supply chain diversification and cost mitigation strategies, as this is its key vulnerability compared to Home Depot.
• Given the significant recent run-up in both stocks and their current 'Hold' ratings, a cautious approach may be warranted until earnings results can validate the recent momentum and provide a clearer outlook.