Why This Analyst Is More Bullish On Home Depot Than Lowe's

Home improvement stocks have been on fire in 2020, but one analyst said Thursday that Home Depot Inc HD is a better play for investors than Lowe’s Companies Inc LOW heading into 2021.

The Analyst: Gordon Haskett analyst Chuck Grom upgraded Home Depot from Accumulate to Buy and reiterated a $315 price target. Grom downgraded Lowe’s from Buy to Accumulate and cut the price target from $205 to $181.

Related Link: Wall Street Weighs In On Home Depot's Blowout Q2, BofA Upgrades Stock

The Thesis: Home Depot is expected to report third-quarter earnings Nov. 17, and Lowe’s is expected to report Nov. 18.

In the new note, Grom said he is still bullish on both home improvement leaders and expects big earnings numbers from both next week.

Lowe’s outperformance relative to Home Depot in 2020 has come in large part from its relatively higher exposure to do-it-yourself customers and relatively lower exposure to professional projects, the analyst said.

That trend will likely continue in the fourth quarter, he said. 

“Moving to 2021, however, it’s our expectation that the pendulum shifts back in favor of the Pro/DIFM cohort, which along with being significantly further ahead on its investment cycle should lend to better for Operating Margin dollar flow through for Home Depot relative to Lowe’s,” Grom said.

Gordon Haskett is projecting Home Depot will report third-quarter EPS of $3 on 17.5% same-store sales estimates. Both numbers would beat consensus analyst estimates of $2.98 and 15.1%, respectively.

For Lowe’s, Grom is calling for EPS of $1.95 on same-store sales growth of 21.5%. Those numbers would be slightly ahead of consensus estimates of $1.91 and 20.1%.

Benzinga’s Take: Based on recent numbers from both Home Depot and Lowe’s, investors can’t go wrong with both names.

Yet Lowe’s may be the better social distancing play, while Home Depot could be a better long-term play on a return to normalcy.