D.R. Horton, Inc. (DHI), PulteGroup, Inc. (PHM): Time to Gear up For a Housing Boom?

Home Depot and Lowe’s have some of the broadest exposure to the housing markets, servicing the market for new homes, and home renovation and improvement customers. Between the two, it appears that Home Depot might be the better value.

• Lowe’s 17.5x
• Home Depot 19.5x

Although Home Depot is a bit more ‘expensive’ than Lowe’s on a multiples basis, I think the premium is warranted. Both companies have a 5-year expected EPS growth rate of 16% and similar debt loads, but Home Depot has better profitability and returns. As far as operating margins go, Home Depot’sTTMmargin is 10.5%, compared to Lowe’s 7%. Even more, Home Depot is tops in return on equity and return on investment:

• Lowe’s 13.5%
• Home Depot 25%

• Lowe’s 8%
• Home Depot 16%

Don’t be fooled

The recent run on Home Depot shares could make the stock appear a bit expensive.  However, a rebounding housing market should help drive all of the above housing-related stocks higher, but especially Home Depot. I see Home Depot as the one stock with the best exposure, and the better investment when compared to Lowe’s, based on its ROE, ROI, and margins.

The article Time to Gear up For a Housing Boom? originally appeared on Fool.com.

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