Should Investors Buy Home Depot Or Lowe's? This Analyst Has The Answer

Lowe's Companies, Inc. LOW and rival Home Depot Inc HD have released their respective earnings reports, which shows Home Depot is the better company but Lowe's is the better stock to own, according to Oppenheimer.

The Analyst

Oppenheimer's Brian Nagel talked Lowe's and Home Depot during Wednesday's "Squawk Box" segment on CNBC.

The Thesis

Lowe's reported its second-quarter results, which shows its recently appointed CEO Marvin Ellison isn't wasting any time and is "getting to work" right away by streamlining the business, Nagel said. Under Ellison's leadership, the company is also closing all Orchard Supply stores it gained from a 2013 acquisition it shouldn't have made in the first place. Instead, the company will shift its focus to simply selling products that actually sell well.

In other words, Lowe's merely needs to "tweak" its business model without the need for significant investment dollars, Nagel said. As such, investors should expect to see improvements as soon as the next few quarters which makes Lowe's stock a turnaround story.

On the other hand, Home Depot is the better company today as evident by superior metrics for essentially the same business, Nagel said. For example, Lowe's has a 5-percentage point deficit in terms of operating margins, which is a "big gap." Lowe's should improve on the gap over time, which would be a key catalyst for the stock to work.

Price Action

Shares of Lowe's were trading higher by 8 percent and hit a new 52-week high of $109.80 Wednesday. Home Depot was also up, trading around $201.66.

Related Links:

How Lowe's Earnings Stack Up To Home Depot

KeyBanc Raises Lowe's Price Target, Likes Ellison's Leadership Style

Photo courtesy of Lowe's.

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Posted In: Analyst ColorLong IdeasAnalyst RatingsTrading IdeasBrian NagelCNBChome improvementMarvin EllisonretailretailersSquawk Box
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