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

Home Depot (HD) and Lowe's (LOW) are nearing their Q2 earnings reports, with both stocks up 2% YTD and showing recent strong momentum despite earlier tariff headwinds. HD is projected for 5% sales growth and 1% EPS, while LOW anticipates 2% sales and 3% EPS, though HD benefits from a more diversified, US-centric supply chain mitigating tariff impacts compared to LOW's greater import reliance. While LOW offers a more attractive forward P/E of 20.5x versus HD's 26.6x, HD provides a higher dividend yield of 2.3%. Both are Zacks #3 (Hold), with Q2 results and future guidance crucial for sustaining recent share momentum.

Analysis

Ahead of their respective Q2 earnings reports, both Home Depot and Lowe's are exhibiting significant upward momentum, with their stocks rising over 8% and 13% this month, respectively, after being subdued by tariff headwinds earlier in the year. Projections indicate divergent growth profiles: Home Depot is expected to post stronger revenue growth of 5% to $45.51 billion, while Lowe's is forecast for superior earnings growth of 3% to $4.24 per share. A key differentiating factor is supply chain resilience; Home Depot is better insulated from tariff impacts, with over 50% of its products sourced domestically and no single foreign country representing more than 10% of purchases. In contrast, Lowe's has greater exposure through its reliance on imports from China, Canada, and Mexico, though it is actively pursuing mitigation strategies. From a valuation perspective, Lowe's appears more attractive, trading at a 20.5x forward P/E, a discount to Home Depot's 26.6x, the industry average of 21x, and the S&P 500. However, Home Depot offers a more compelling dividend yield at 2.3% versus Lowe's 1.9%. With both stocks currently holding a Zacks Rank #3 (Hold), their ability to meet expectations and provide positive forward guidance will be critical in sustaining the recent rally.

Key Decisions for Investors

• Given the recent significant run-up in both stocks and their current 'Hold' ratings, investors should treat the upcoming Q2 earnings and forward guidance as critical catalysts before initiating or adding to positions.
• For investors prioritizing defensive characteristics and income, Home Depot's more resilient U.S.-centric supply chain and higher 2.3% dividend yield may justify its premium valuation.
• Value-focused investors might find Lowe's more appealing due to its forward P/E of 20.5x, which is at a discount to both its primary competitor and the industry, though this comes with higher exposure to tariff and supply chain risks.
• Monitor management commentary from both companies closely for updates on tariff mitigation strategies and their impact on margins, as this will be a key determinant of future profitability and stock performance.