2 Home Improvement Leaders Building Momentum for Upside

Key Points

• Lowe’s and Home Depot are enjoying robust year-to-date performances, breaking out of bullish consolidations as the year-end approaches.
• Both companies are fresh off strong earnings reports, reaffirming their leadership positions in the home improvement retail sector with positive momentum driving investor confidence.
• Elevated interest rates, potential tariffs, and housing affordability concerns present challenges, but recent price action suggests the market is optimistic. 

Lowe’s NYSE: LOW and Home Depot NYSE: HD are the two consumer cyclical home improvement giants enjoying strong momentum as the year-end approaches. Both stocks have nearly identical year-to-date performances and are breaking out of bullish consolidations. Fresh off their respective earnings reports, both companies have all but solidified their positions as leaders in the home improvement retail space, with favorable tailwinds and strong momentum driving investor interest.

Lowe’s vs. Home Depot

While both companies compete directly, they serve slightly different market segments. Home Depot is known for catering to professional contractors and large-scale construction projects, offering a wide selection of heavy-duty tools and building materials. In contrast, Lowe’s appeals more to homeowners and DIY enthusiasts, focusing on home décor, design, and an enhanced customer experience. Economic conditions also impact the two companies differently. Home Depot’s strong foothold in professional sales tends to provide stability during periods of high interest rates, while Lowe’s is more vulnerable to fluctuations in consumer confidence and spending.

Despite Challenges, Home Depot Gains Upward Momentum

As the largest home improvement retailer in the United States, Home Depot continues to dominate the sector with its broad footprint and focus on professional and commercial customers. The company has had a standout year, with its stock recently hitting fresh 52-week highs following a strong third-quarter earnings report.

For Q3 2024, Home Depot reported earnings per share of $3.78, comfortably beating Street expectations of $3.64. Revenue rose 6.6% year-over-year to $40.22 billion, surpassing analyst estimates of $39.31 billion. The company also raised its full-year sales growth outlook to 4%, citing stronger-than-expected results and increased demand from hurricane-related recovery efforts.

Home Depot’s strong performance and improved outlook have drawn positive sentiment from analysts, with the stock receiving a Moderate Buy rating. Additionally, its technical breakout above prior resistance levels has positioned the stock for further upside as it shows relative strength to the broader market.

However, challenges remain. Elevated mortgage rates and potential tariffs under the incoming administration could increase the cost of goods, potentially impacting pricing and consumer affordability. Despite these risks, Home Depot’s focus on professionals and large-scale projects gives it a degree of resilience in a challenging economic environment.

Lowe's Demonstrates Resilience in Recent Earnings

Lowe’s, the second-largest home improvement chain globally, has also enjoyed a stellar year, with its stock performing in lockstep with Home Depot. The company recently broke through a significant resistance level, signaling the potential for further gains as it builds on positive momentum.

Lowe’s third-quarter earnings report showcased its ability to exceed expectations despite negative same-store sales growth. The company posted revenue of $20.17 billion, above the forecasted $19.93 billion, and adjusted earnings per share of $2.89, beating the consensus estimate of $2.82. While same-store sales declined 1.1%, this was far better than the anticipated 2.7% drop, thanks to growth in its Pro business, hurricane recovery-related demand, and online sales.

However, Lowe’s faces challenges stemming from its reliance on DIY shoppers, who continue to pull back due to high interest rates and inflation pressures. Additionally, low housing turnover, currently near 30-year lows, has dampened demand for home improvement projects, and the sentiment around housing affordability remains a headwind.

The Market Sees Conditions Improving

Both Lowe’s and Home Depot are well-positioned for further upside, bolstered by year-to-date solid performances and improving market sentiment. While challenges such as elevated interest rates, potential trade tariffs, and housing affordability remain significant, recent price action suggests that the market is optimistic about a favorable shift in these conditions.

The bullish momentum driving both stocks reflects growing investor confidence that the sector's headwinds may be easing or that their impact has already been priced in. As Lowe’s and Home Depot break out of consolidation, the market appears to be signaling brighter days ahead for these home improvement giants.