Morningstar Favors Lowe's Over Home Depot Amid Housing Market Woes

Morningstar's Chief U.S. Market Strategist Dave Sekera favors Lowe's over Home Depot, citing a more attractive valuation and stronger long-term prospects. The analyst notes that Home Depot trades above Morningstar's fair value estimate of $325, while Lowe's is about 15% below its estimate at around $255.

Sekera warns that higher mortgage costs and housing pressures could continue weighing on home-improvement spending, which led to a decline in Home Depot's Q2 operating margin to 14.7%. In contrast, Lowe's revenue rose 8%, but comparable sales gained only 0.2% due to high transportation and fuel costs.

Morningstar retains its $255 fair value estimate for Lowe's, expecting the company to eventually produce about 3% annual comparable-sales growth and a 13.7% operating margin. Sekera views Lowe's as a clearer opportunity compared to Home Depot, with Lowe's stock currently trading at a price-to-earnings multiple of 17.1X.