Home Depot Outshines Lowe's as Housing Market Freeze Continues

Home improvement giants Home Depot and Lowe's have both taken a hit this year, but one stock stands out as a better choice for retirement investors. As of September 28, Home Depot is down 15.15% year to date, while Lowe's has fallen by 23.57%. Despite the similar declines, Home Depot's stronger execution in the face of a stalled housing market makes it the preferred choice.

According to Richard McPhail, Home Depot's Q2 comps rose 1.7%, with July seeing an acceleration to 2.3%. The company reaffirmed its full-year guidance and reported that Q3 has started consistently with the demand seen in the second quarter. In contrast, Lowe's posted Q2 comps of just 0.2% and saw July comps fall by 1.2%. The company even cut its outlook to flat comps and adjusted EPS of about $12.25 for the full year.

Home Depot's balance sheet offers more peace of mind for retirees, with a 12.7% operating margin and 8.6% net margin compared to Lowe's 11.77% and 7.71%. While Lowe's has a stronger return on invested capital (ROIC) at 13.3%, its leverage is a concern, with net debt of 3.54 times EBITDA and interest coverage of just 6.65. In contrast, Home Depot has a lower debt-to-EBITDA ratio of 2.65 and interest coverage of 8.66.

Lowe's cheaper valuation may appeal to value hunters, but its dividend yield is lower than Home Depot's at 2.48% compared to 3.13%. With $12.65 billion in free cash flow for FY25, Home Depot's increased dividend payout provides more income security for retirees.