Home Depot (HD) and Lowe's (LOW) are good stocks for those who want to invest in home-improvement companies. So, investors should keep a close watch on the recovery of the housing market if they wish to benefit from these two companies.
According to Home Improvement Research Institute, the housing market surged to six-year highs last November, growing 22.7% year over year. In addition, sales of existing homes also increased over 10% as compared to last year. This was almost in line with HIRI's projection of 20% growth in housing and 9.8% increase in existing home sales for 2013. Looking forward, these numbers are expected to be around 30% and 9.3%, respectively, for 2014.
Let us see in detail what the prospects are for these firms and how will they will benefit investors.
Taking a Close Look
Home Depot is the largest American retailer for home improvement and construction products and services. Its recent results were better than consensus estimates. This was mainly driven by a rebound in the seasonal categories due to the recovering housing market in the U.S. Revenue increased on account of strong growth in comps, with an increase in earnings over last year.
A similar trend was seen for Lowe's, which reported significant growth. Backed by a solid performance across all its products, Lowe's earnings beat the estimates. Its gross profit increased 11.6% year over year. This resulted in an increase in earnings that were ahead of analysts' expectations.
In accordance with the projections from HIRI, Fitch has also predicted higher spending on home improvement in 2014. According to the National Association of Home Builders, housing market activity in 52 of approximately 350 metro areas in the U.S. has returned to or exceeded pre-recessionary levels.
All these facts indicate that the housing market is expected to grow in the future and this is a big opportunity for companies like Home Depot, Lowe's and Lumber Liquidators. Home Depot is the largest of the three in terms of store count, and it is concentrating less on expanding store count but improving store efficiency with the help of technology.
Road Ahead
To increase its presence in California market, Lowe's has acquired Orchard Supply Hardware, which is offering stiff competition to Home Depot. This will add 72 more stores to its existing fleet.
Looking forward, both companies would benefit from the booming housing industry. Home Depot, being the largest, has an edge and is better positioned to maximize its gains from the opportunity. Home Depot is working hard to attract as many customers during the holiday season. Keeping this in mind, it recently launched a mobile app for customers which will make shopping easier. Also, it is enhancing its website to make its online operations even better.
In addition, it is launching new products such as the Nest Protect smoke detector, a carbon monoxide detector, the Cree True White bulb, and many other products. It is also improvising its products to attract more customers.
Talking about Lumber Liquidators (LL), it caters to the hardwood flooring market. Currently at a P/E ratio of 30, it is very expensive as compared to both Lowe's and Home Depot. Home Depot has a P/E ratio of 20 while Lowe's is slightly more expensive at 22 times earnings. It will be better on the part of investors to look for either Home Depot or Lowe's, as they are comparably cheaper.
Making a Choice
Among all three, Home Depot looks the best in class. It is the cheapest and has a strong market position along with a wide store network. Looking at all these factors Home Depot looks to be a better investment option.
Home Depot (HD) and Lowe's (LOW) are good stocks for those who want to invest in home-improvement companies. So, investors should keep a close watch on the recovery of housing market if they wish to benefit from these two companies.
According to Home Improvement Research Institute, the housing market surged to six year highs last November, growing 22.7% year over year. In addition, sales of existing homes also increased over 10% as compared to last year. This was almost in line with HIRI's projection of 20% growth in housing and 9.8% increase in existing home sales for 2013. Looking forward, these numbers are expected to be around 30% and 9.3%, respectively, for 2014.
Let us see in detail what the prospects are for these firms and how will they will benefit investors.
Taking a Close Look
Home Depot is the largest American retailer for home improvement and construction products and services. Its recent results were better than consensus estimates. This was mainly driven by a rebound in the seasonal categories due to the recovering housing market in the U.S. Revenue increased on account of strong growth in comps, with an increase in earnings over last year
A similar trend was seen for both Lowe's, which reported significant growth. Backed by a solid performance across all its products, Lowe's earnings beat the estimates. Its gross profit increased 11.6% year over year. This resulted in an increase in earnings that were ahead of analysts' expectations.
In accordance with the projections from HIRI, Fitch has also predicted higher spending on home improvement in 2014. According to the National Association of Home Builders, housing market activity in 52 of approximately 350 metro areas in the U.S. has returned to or exceeded pre-recessionary levels.
All these facts indicate that the housing market is expected to grow in the future and this is a big opportunity for companies like Home Depot, Lowe's and Lumber Liquidators. Home Depot, is the largest of the three in terms of store count, and it is concentrating less on expanding store count but improving store efficiency with the help of technology.
Road Ahead
To increase its presence in California market, Lowe's has acquired Orchard Supply Hardware, which is offering stiff competition to Home Depot. This will add 72 more stores to its existing fleet.
Looking forward, both companies would benefit from the booming housing industry. Home Depot, being the largest, has an edge and is better positioned to maximize its gains from the opportunity. Home Depot is working hard to attract as many customers during the holiday season. Keeping this in mind, it recently launched a mobile app for customers which will make shopping easier. Also, it is enhancing its website to make its online operations even better.
In addition, it is launching new products such as the Nest Protect smoke detector, a carbon monoxide detector, the Cree True White bulb, and many other products. It is also improvising its products to attract more customers.
Talking about Lumber Liquidators, it caters to the hardwood flooring market. Currently at a P/E ratio of 30, it is very expensive as compared to both Lowe's and Home Depot. Home Depot has a P/E ratio of 20 while Lowe's is slightly more expensive at 22 times earnings. It will be better on the part of investors to look for either Home Depot or Lowe's, as they are comparably cheaper.
Making a Choice
Among all three, Home Depot looks the best in class. It is the cheapest and has a strong market position along with a wide store network. Looking at all these factors Home Depot looks to be a better investment option.
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