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

Looking ahead to next week’s earnings lineup, retail earnings from Home Depot HD and Lowe’s LOW will be a highlight, and it may be a worthy topic of whether it’s worth buying stock in either of these home improvement companies at the moment.Subdued by tariff headwinds earlier in the year, Home Depot and Lowe’s stock have started to gain momentum ahead of their Q2 reports, with both now up +2% year to date, as HD has risen over +8% this month and LOW has spiked +13%.Image Source: Zacks Investment Research Home Depot & Lowe’s Q2 ExpectationsSet to report Q2 results next Tuesday, August 19, Zacks' projections call for Home Depot’s quarterly sales to be up 5% to $45.51 billion compared to $43.18 billion a year ago. On the bottom line, Home Depot’s Q2 earnings are expected to be up roughly 1% to $4.71 per share from EPS of $4.67 in the prior year quarter.As for Lowe’s, which will be reporting on Wednesday, August 20, its Q2 sales are thought to have risen nearly 2% to $23.99 billion versus $23.59 billion in the prior period. Lowe’s Q2 EPS is expected to be up 3% to $4.24 from $4.10 in the comparative quarter.   Home Depot & Lowe’s Tarriff StrategiesStriving to move past the impact of higher tariffs, Lowe’s has been more vulnerable to cost increases as the company relies more heavily on imports from China, Canada, and Mexico. However, Lowe’s CEO Marvin Ellison has emphasized competitive pricing and other internal tools to minimize customer impact, such as diversifying and restructuring its supply chains and even redesigning some products to avoid components that are vulnerable to steeper tariffs.Home Depot, on the other hand, has been ahead of the curve in terms of its diversified supply chain, as over 50% of its products are sourced from U.S. suppliers, with no foreign country accounting for more than 10% of its sourcing purchases. Home Depot has also strived to shield its customers from tariff impacts by not aggresively raising it prices, while replacing individual items that may be impacted by higher costs. HD & LOW Valuation ComparisonIn terms of valuation, Lowe’s stock stands out at 20.5X forward earnings compared to Home Depot’s 26.6X. Notably, Lowe’s offers a slight discount to their Zacks Retail-Home Furnishings Industry average of 21X forward earnings and the benchmark S&P 500’s 24.7X. Furthermore, LOW also trades under the optimum level of less than 2X sales, with Home Depot at 2.4X.Image Source: Zacks Investment Research HD & LOW Dividend ComparisonWhile valuation may be a deciding factor for some investors regarding which of these home improvement retailers to choose from, Home Depot’s 2.3% annual dividend yield certainly boost its value to shareholders and tops Lowe’s 1.9%. That said, Home Depot and Lowe’s annual dividends are both above the industry average of 1.06% and the S&P 500's average of 1.15%.Image Source: Zacks Investment Research Bottom LineHome Depot and Lowe’s Q2 reports will be critical to assessing whether they are moving past tariff headwinds. In this regard, Home Depot has been the more favorable investment when considering its diversified supply chain. Still, a cheaper stock price and valuation certainly makes Lowe’s stock more appealing to some investors. For now, both stocks land a Zacks Rank #3 (Hold) as reaching or exceeding their Q2 expectations, and the ability to offer favorable guidance will be crucial to sustaining the recent momentum in HD and LOW shares.Zacks Names #1 Semiconductor StockThis under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lowe's Companies, Inc. (LOW): Free Stock Analysis Report The Home Depot, Inc. (HD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks