Lowe's Looks Cheaper Than Home Depot: Analyst
Analyst Dave Sekera from Morningstar believes that Lowe's Companies (LOW) offers more attractive valuation than Home Depot (HD) after their Q2 results. While both companies face a weak housing market, Sekera thinks Lowe's is the better choice due to its current price relative to Morningstar's fair value estimate.
The Q2 operating margin for Home Depot fell to 14.7%, with Sekera warning that higher mortgage costs and housing pressures could continue weighing on home-improvement spending. In contrast, he sees a 3% long-term comparable-sales growth and a 13.7% margin for Lowe's.
Lowe's Q2 revenue increased 8%, surpassing Home Depot's 5.7% growth, but its operating margin fell due to high transportation and fuel costs. Morningstar kept its $255 fair value estimate for Lowe's unchanged, while Sekera expects the company to eventually produce about 3% annual comparable-sales growth and a 13.7% operating margin.