Lowe's Is Executing, But It's No Home Depot

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Following two days of losses, stocks are higher this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average up 0.16% and 0.06%, respectively, at 10:13 a.m. EST. The market may be drawing strength from retail sales data for October released this morning that show a 0.4% rise -- the best such figure in three months and higher than economists' median forecast of 0.1% in a survey carried out by Bloomberg. The number is particularly encouraging in light of the government shutdown that blighted the first half of the month and augurs well for a holiday shopping season that has retailers preparing for merciless price competition.

Pity Lowe's , which announced results for its fiscal third quarter ended Nov. 1 this morning. The self-proclaimed "world's second largest home improvement retailer" suffers from the comparison with the No. 1, Home Depot , which reported its results yesterday.


Lowe's' earnings per share rose 34% year on year to $0.47 on a 7.3% increase in sales to $13 billion. While that EPS number was a penny shy of Wall Street expectations, the sales figure came in above the $12.72 consensus forecast, according to data from Thomson Financial Network.

Comparable sales for the quarter (sales at stores open for at least one year) rose 6.2% -- a multiple of the 1.6% average rate at which the economy has grown over the past four quarters. Lowe's raised its full-year EPS guidance to $2.15 from the $2.10 it had provided in August, and CEO Robert Niblock said "the home improvement industry is poised for persisting growth in the fourth quarter and further acceleration in 2014."

In absolute terms, that looks like a fine performance by any stretch of the imagination, but it is not enough to satisfy the market his morning; shares of Lowe's are down 4% at 10:13 a.m. EST. By comparison, Home Depot beat on earnings per share and revenue yesterday and raised its full-year guidance above analysts' consensus (Lowe's revised guidance remained below the $2.19 analysts were forecasting). Finally, Home Depot expects an increase in comparable sales for the full year of 7%, against only 5% for Lowe's.

In one area Lowe's is ahead: Its stock is beating Home Depot's in terms of year-to-date price performance.

LOW Chart

LOW data by YCharts

However, today's decline in Lowe's' stock could prefigure broader reversal in that outperformance. After all, at a price-to-forward earnings multiple of 19.1, Home Depot's shares are somewhat cheaper than Lowe's' (forward P/E: 20.71), and the larger company is executing more effectively -- on that basis, the choice between the two stocks looks pretty straightforward.

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The article Lowe's Is Executing, But It's No Home Depot originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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