Lowe’s Companies, Inc. (LOW), The Home Depot, Inc. (HD): Play the Housing Market With Home Improvement Stores

For the full-year, the company is expecting to deliver between 3,925 and 4,125 homes with revenue between $2.46 billion and $2.62 billion. This compares to a total of homes delivered 3,286 in 2012, and revenue of $1.88 billion. Citing the University of Michigan consumer sentiment survey, and the slowly improving job market, management is confident that the housing rebound will continue to take hold.

Valuations and metrics

Home improvement stores don’t look cheap at the moment, but also not outrageously expensive. Lowe’s trades at 26.26 times trailing earnings, and The Home Depot, Inc. (NYSE:HD) at 23.44. Toll Brothers Inc (NYSE:TOL) however looks like a steal at 10.9 times trailing earnings versus the 15.65 home construction industry average. Lowe’s trades at only 0.94 to sales, compared to Home Depot’s 1.43, with gross margin more or less equal. Based on these metrics, it’s hard to call a clear winner between the two.

The bottom line

Clearly, the US housing market is picking up, which is reflected in home improvement retail earnings. Lowe’s beat estimates easily for the quarter, and expects a solid performance throughout the year. However, so does its main competitor Home Depot. In any case, those that wish to benefit from an improving housing market might look toward home improvement stores for solid growth.

The article Play the Housing Market With Home Improvement Stores originally appeared on Fool.com and is written by Daniel James.

Daniel James has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s. 

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