Lowe’s is anticipated to face challenges from slow home sales as it reports its third-quarter results on Tuesday. While both Lowe’s (LOW) and Home Depot (HD) have been navigating a challenging environment for home-improvement product sales, Lowe’s could still make progress against its competitor.
Deceleration in Market Conditions
The high interest rates have led to difficulty in purchasing homes, which is a common trigger for remodeling projects. This has also discouraged other significant projects, resulting in a dip in sales for both companies. Despite consumers’ resiliency, they have been cutting back on their expenses, according to Home Depot. It is expected that Lowe’s will share a similar sentiment in its upcoming report.
Projections for Lowe’s Third-Quarter Results
Wall Street analysts project that Lowe’s third-quarter revenue will decline by 11% compared to the same quarter last year, amounting to $20.9 billion. Additionally, same-store sales are expected to decrease by 5.4% this quarter. On an adjusted basis, analysts have estimated earnings of $3.02 per share for the company.
Focus on Professional Contractors
An interesting point of discussion leading up to the report is whether Lowe’s will outperform Home Depot. Analyst Dean Rosenblum from AB Bernstein believes that Lowe’s might have an advantage this quarter due to the strides it has made in expanding its offerings for professional contractors. While Home Depot’s Pro business has been larger than Lowe’s in recent years, Lowe’s is gradually closing the gap. Sales to contractors have been growing at a faster pace at Lowe’s as compared to Home Depot in recent quarters.
Home Depot’s Pro and DIY Sales Narrowing Gap
Home improvement retail giant Home Depot reported that its professional (Pro) sales only slightly outperformed do-it-yourself (DIY) sales in the company’s latest quarter. According to Home Depot CEO Edward Decker, the company witnessed the “narrowest gap” between Pro and DIY sales. However, industry experts have differing opinions on the future growth prospects for Home Depot and its competitor, Lowe’s.
Diverging Views on Prospects
While some analysts remain optimistic about Lowe’s potential for Pro share growth, others are more skeptical. Analyst Rosenblum holds an Outperform rating on Lowe’s and a Market-Perform on Home Depot. On the other hand, analyst Joseph Feldman from Telsey Advisory Group has Market Perform ratings for both Lowe’s and Home Depot. Feldman believes that industry challenges have exceeded expectations since the end of August, citing soft earnings results from other home improvement companies.
Key Factors for Outperforming the Market
In order for Home Depot’s stock to return to sustained outperformance relative to the S&P 500, Feldman suggests that investors will need clearer signs of improvement in the housing market and increased consumer engagement in larger projects. Currently, Home Depot stock has underperformed the S&P 500, with a gain of only 2.6% this year compared to the index’s 18% gain. Home Depot stock is down by 2.1%.
Lowe’s: A Stock Pick
Despite Home Depot’s challenges, Lowe’s continues to be favored as a stock pick.
