In the latest fiscal first-quarter earnings reports, both Home Depot and Lowe's reported comparable sales growth of 0.6%, a significant milestone for Home Depot, which had struggled to keep pace with its rival. Following the earnings announcement, Home Depot's stock surged over 5%, while Lowe's saw a decline of 1.5%.
Analysts from FactSet predict that both companies will continue to show similar growth in the upcoming quarters, with estimates of 0.9% and 1.5% for the second and third quarters, respectively.
Mizuho analyst David Bellinger noted that Home Depot is likely to regain its competitive edge in the coming quarters, particularly due to its recent acquisition of SRS Distribution, which enhances its Pro business segment. This segment, which constitutes about 55% of Home Depot's sales, is expected to benefit from the recovery of larger financed projects.
Conversely, Lowe's is also expanding its Pro reach following its acquisition of Foundation Building Materials, which will start contributing to its sales figures later this year. Despite these positive developments, both companies face challenges due to high mortgage rates, which have not yet spurred a recovery in the home improvement cycle.
The outlook for both Home Depot and Lowe's remains contingent on a decline in interest rates, which could unlock further growth opportunities. Over the past year, Home Depot's stock has declined by 15%, while Lowe's has dropped over 4%, contrasting sharply with the S&P 500's nearly 30% gain.
Investors are now looking for Home Depot to narrow its performance gap as it aligns its business metrics with those of Lowe's