How Lowe's stock has trounced Home Depot's - and what may lie ahead

By Philip van Doorn

The hardware and home-furnishings rivals will both report quarterly results this week

Lowe's has beaten Home Depot in a variety of performance measures over the long term, while its stock has also performed better. But Home Depot has shone recently.

With similar business models, Home Depot and Lowe's offer investors an opportunity to make direct comparisons of their operating performance, returns of their stocks and growth expectations.

Home Depot (HD) will report results for the fourth quarter of its fiscal 2025 early on Tuesday and Lowe's (LOW) will report early Wednesday.

The following are comparisons of several measures of long-term performance for the rival companies, with a look at recent operating metrics.

How the stocks have performed over the long term

Home Depot's stock returned 290% over the past 10 years through Friday, while Lowe's shares returned 397%. In comparison, the S&P 500's SPX 10-year total return through Thursday was 328%, according to LSEG.

For five years, Home Depot's stock returned 62%, while Lowe's shares returned 82%. Both trailed the S&P 500's 90% return for the five-year period.

All investment returns in this article include reinvested dividends.

Dividend compounding

So how about those dividends?

Home Depot pays a quarterly dividend of $2.30 a share. Based on the annual payout of $9.20 a share and Friday's closing price of $382.25, the stock's dividend yield is 2.41%.

But what if you had purchased Home Depot's stock at the close five years ago, at the close on Friday, Feb. 19, 2021? At that time, the quarterly dividend was $1.65 for an annualized payout of $6.60 and a dividend yield of 2.36%, based on the closing price of $279.64 that day. So the current yield has risen a bit. But if you had held the stock for five years through Friday, your dividend would have increased at a compound annual growth (CAGR) rate of 6.9% and your dividend yield based on what you paid for your five-year-old shares would be 3.29%.

Lowe's has compounded its dividend more quickly. The company's current quarterly dividend is $1.20, for an annual payout of $4.80 and a dividend yield of 1.71%, based on Friday's closing price of $280.36.

If you had bought shares of Lowe's on Feb. 19, 2021, you would have paid $177.54 for the stock when the quarterly dividend was 60 cents, for an annual payout of $2.40 and a dividend yield of 1.35%. So the current yield is higher than it was five years ago. Your dividend yield on your five-year-old shares would be 2.70%. That is lower than it would be for five-year-old shares of Home Depot, but for Lowe's, the dividend CAGR has been 14.9%.

That might help explain the better return for Lowe's over the past five years. The next item may have helped more.

Buybacks and share-count reduction

Home Depot and Lowe's have both deployed cash by repurchasing stock over the years, although this has been curtailed during each company's current fiscal year. Over the past three fiscal quarters, Home Depot hasn't bought back any shares, but during the first three quarters of its fiscal 2024, the company spent $649 million on buybacks. Lowe's has spent $29 million on buybacks during its most recent fiscal year, down from $2.26 billion during the first three quarters of its fiscal 2024.

Stock buybacks lower a company's share count. The buybacks might serve only to mitigate the dilution caused by the issuance of new shares to hand to corporate executives as part of their compensation. But if the buybacks are of sufficient quantity, the net share count will be reduced, which boosts earnings per share.

And net share-count reductions can lead to a compounding effect, which you can see in this example:

-- A company's profit is $1,000.

-- There are 100 shares.

-- That makes for $10 in earnings per share.

What if the share count were reduced by 10%?

-- The company's profit would still be $1,000.

-- There would be 90 shares.

-- EPS would be $11.11.

-- EPS would have increased by 11%.

Over the past five years, Home Depot's average diluted share count used to calculate earnings per share has declined 7.7%, while the average share count for Lowe's has declined 24.9%. This means that all other things being equal, Home Depot's buybacks over the past five years have boosted its EPS by 8.3%. Lowe's has used buybacks to boost its EPS by a third over the past five years.

Recent sales growth and profit margins

A company's gross profit margin is its net sales less the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts, such as coupons. The cost of goods or services sold includes the actual expenses when making the items or providing the services. Gross margin is a measurement of pricing power and core efficiency.

A company's operating margin incorporates more overhead and other expenses that aren't directly related to the production of goods and services. It can be summarized as earnings before interest and taxes, divided by sales.

A combination of sales growth and improving gross and operating margins is a good sign for any company. It indicates the company isn't being forced to offer discounts to defend its market share.

Since margins vary by industry, they can be most useful when comparing companies with similar business models, such as Home Depot and Lowe's.

Here is a summary showing how each company's sales for the first three quarters of their current fiscal years have increased from the year-earlier periods, and how their profit margins changed:

   Company             Sales growth  Gross margin - first three quarters of fiscal 2025  Gross margin - first three quarters of fiscal 2024  Operating margin - first three quarters of fiscal 2025  Operating margin - first three quarters of fiscal 2024 
   Home Depot Inc.             5.6%                                              31.41%                                              31.40%                                                  12.94%                                                  13.47% 
   Lowe's Cos.                 0.9%                                              31.91%                                              31.55%                                                  12.54%                                                  12.57% 
                                                                                                                                                                                                                                               Source: LSEG 

Home Depot showed much stronger sales growth, a slightly improved gross margin and a declining operating margin.

Lowe's had slow sales growth, a stronger gross margin and an operating margin that narrowed only slightly, but those were lower than those of Home Depot.

Revenue and EPS growth projections

Here are projected CAGR for the companies' revenue and earnings over the next three fiscal years from the fiscal years that have just ended. The projections are based on consensus estimates among analysts polled by LSEG.

   Company             Projected sales CAGR from fiscal 2025 through fiscal 2028  Projected EPS CAGR from fiscal 2025 through fiscal 2028 
   Home Depot Inc.                                                          4.0%                                                     3.4% 
   Lowe's Cos.                                                              5.0%                                                     5.6% 
                                                                                                                             Source: LSEG 

In comparison, the S&P 500 is projected to show a weighted revenue CAGR of 7.7% for three years through 2028, with a weighted EPS CAGR of 15.2%.

Analysts' opinions

Here is a summary of opinion among analysts working for brokerage and research firms polled by LSEG that cover Home Depot and/or Lowe's:

   Company             Share "buy" ratings  Feb. 20 price  Consensus price target  Implied 12-month upside potential 
   Home Depot Inc.                     58%        $382.25                 $399.61                                 5% 
   Lowe's Cos.                         67%        $280.36                 $283.24                                 1% 
                                                                                                        Source: LSEG 

Lowe's has a higher percentage of "buy" or equivalent ratings among the analysts. The consensus price targets are slightly higher than the current share prices. This might make the stocks appear to be fairly valued. Then again, the majority positive ratings may indicate that although the Wall Street tradition is to set 12-month price targets, the analysts' ratings incorporate longer-term expectations.

Conclusion

Lowe's has come out ahead in most of the above comparisons; it has been the better long-term performer in the stock market and has beaten the S&P 500's 10-year return by a wide margin. Lowe's is also expected by analysts to increase revenue more quickly than Home Depot over the next three years.

But Home Depot has shone lately, with a much higher sales growth figure and a better operating margin than that of Lowe's.

-Philip van Doorn

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-23-26 0728ET