Dwelling Depot Vs. Lowe’s: The Clear Winner (NYSE:HD)


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On this evaluation of Dwelling Depot, Inc. (NYSE:HD) vs. Lowe’s Firms, Inc. (NYSE:LOW), we in contrast the 2 largest dwelling enchancment retailers with a mixed share of 48% in 2021. First, we in contrast the corporate by way of market management the place we appeared into the market share of each corporations within the dwelling enchancment retail market, income stream by geographic area and gross sales metrics together with gross sales per retailer and retail sq. foot, buyer transactions and common ticket dimension.

Subsequent, we in contrast each corporations by way of their service capabilities the place we examined their buyer opinions on third-party evaluate websites, product vary based mostly on their web sites, common pricing of merchandise and distribution & logistics capabilities.

Lastly, we examined their firm profitability by trying into their revenue margins by way of gross, working and internet in addition to its money flows by FCF margins and firm financials by means of its internet debt as a % of market cap and credit score ratios.

Market Management

To check the 2 corporations by way of their market management, we appeared into 3 components which had been their market share, geographical income, retailer depend and gross sales metrics.

Market Share

home improvement market share

Firm Knowledge, Khaveen Investments

By way of the market share of dwelling enchancment retail, Dwelling Depot and Lowe‘s are two of the most important corporations. Although, Dwelling Depot is bigger than Lowe‘s and has retained its place because the primary firm up to now 10 years. Though each corporations gained a share up to now 10 years, Dwelling Depot edged out Lowe‘s with the next share acquire as its income progress was 8.4% in comparison with 7.19% for Lowe‘s.

Geographic Income

geographic revenue

Dwelling Depot, Lowe‘s

Furthermore, based mostly on their annual stories, each corporations present a excessive income focus within the US which accounted for over 90% of their revenues in 2021 with Lowe‘s having a barely greater income contribution from the US. Alternatively, Dwelling Depot had a barely greater income contribution from its worldwide operations in Canada. General, we consider each corporations present a excessive income focus danger as their revenues lack geographical diversification being closely depending on the US however Dwelling Depot has a barely decrease danger than Lowe‘s.

Gross sales Metrics

Whereas we consider the variety of shops to be a key indicator of its potential to serve prospects, we additionally contemplate different metrics which may point out the strengths of its enterprise together with gross sales per retailer, gross sales per sq. foot, buyer transactions and common ticket dimension.

Gross sales Metrics

Dwelling Depot

Lowe’s

Income

151,157

96,250

Development % (10-year)

8.4%

7.2%

Gross sales per Retailer

65.2

48.8

Development % (10-year)

8.1%

6.0%

Buyer Transactions (‘mln’)

1,760

1,002

Development % (10-year)

3.0%

2.3%

Common Ticket

85.9

96.1

Development % (10-year)

5.3%

4.8%

Supply: Dwelling Depot, Lowe‘s, Khaveen Investments

Based mostly on the desk, Dwelling Depot had greater revenues than Lowe‘s and the next 10-year progress price. Apart from that, Dwelling Depot was superior to Lowe‘s in all gross sales metrics besides common ticket dimension, with greater gross sales per retailer, gross sales per retail sq. foot and buyer transactions. Furthermore, Dwelling Depot even had the next 10-year common progress price for all these metrics. Subsequently, we consider that though Dwelling Depot had decrease retailer depend progress than Lowe‘s, it had been targeted on rising its gross sales and transactions in its shops which had been driving its income progress.

To forecast each corporations’ revenues, we used their common 10-year gross sales per retailer progress tapered down by 1% per yr and retailer progress to derive their complete income progress.

Income Projections

2019

2020

2021

2022F

2023F

2024F

2025F

2026F

Dwelling Depot Shops

1,984

2,296

2,317

2,329

2,341

2,352

2,364

2,376

Development %

-13.2%

15.7%

0.9%

0.5%

0.5%

0.5%

0.5%

0.5%

Dwelling Depot Gross sales per Retailer

55.6

57.5

65.2

69.9

74.1

77.9

81.1

83.6

Development %

17.4%

3.6%

13.4%

7.1%

6.1%

5.1%

4.1%

3.1%

Dwelling Depot Income ($ mln)

110,225

132,110

151,157

162,705

173,500

183,268

191,744

198,684

Development %

1.9%

19.9%

14.4%

7.6%

6.6%

5.6%

4.6%

3.6%

Lowe’s Shops

1,977

1,974

1,971

1,998

2,025

2,052

2,080

2,108

Development %

-1.9%

-0.2%

-0.2%

1.3%

1.3%

1.3%

1.3%

1.3%

Lowe’s Gross sales per Retailer

36.5

45.4

48.8

51.3

53.3

54.9

55.9

56.5

Development %

3.1%

24.4%

7.6%

5.0%

4.0%

3.0%

2.0%

1.0%

Lowe’s Income ($ mln)

72,148

89,597

96,250

102,385

107,874

112,564

116,317

119,016

Development %

1.2%

24.2%

7.4%

6.4%

5.4%

4.3%

3.3%

2.3%

Supply: Dwelling Depot, Lowe‘s, Khaveen Investments

General, we consider Dwelling Depot has a bonus over Lowe‘s for the market management level because it has the best market share within the dwelling enchancment retail market, barely extra income publicity to worldwide enterprise and higher gross sales metrics by way of income progress, retailer depend, gross sales per common retail sq. foot, buyer transactions and common ticket progress.

Market Management

Benefit

Market Share

Dwelling Depot

Geographic Income

Dwelling Depot

Gross sales Metrics

Dwelling Depot

General

Dwelling Depot

Supply: Khaveen Investments

Service Functionality

To check the 2 corporations by way of their service functionality, we appeared into 3 components which had been their buyer opinions, product vary, pricing and distribution and logistics.

Buyer Critiques

To check each corporations by way of their customer support, we appeared into their common buyer opinions from Belief Pilot and recognized the corporate with the very best scores.

Firm

Common Buyer Critiques

Dwelling Depot

1.4

Lowe‘s

1.5

Supply: Belief Pilot

From the desk, each corporations had poor opinions on Belief Pilot with each underneath 2 out of 5 stars. Based mostly on the opinions, we discovered the shopper complaints to be by way of a wide range of components together with customer support. Although, Lowe‘s had a barely higher ranking than Dwelling Depot. We consider this means the same customer support degree for each corporations, however Lowe‘s is barely higher off.

Product Vary

Furthermore, we examined the businesses by way of their product vary to find out which firm has a bonus in product selection. To check their product vary, we appeared into their web sites and compiled the variety of product subcategories for 14 classes beneath.

product categories

Dwelling Depot, Lowes

Based mostly on the chart, we discovered Lowe‘s to have the next variety of product subcategories throughout 7 of the 14 product classes that are home equipment, constructing supplies & provides, flooring, {hardware}, heating & cooling, storage & group and doorways & home windows. Alternatively, Dwelling Depot has the next variety of subcategories in 4 product classes resembling automotive, vacation decorations, kitchen and sensible dwelling. In 3 product classes, each corporations had been tied with an equal variety of subcategories that are tub, plumbing and instruments. Nevertheless, Dwelling Depot have the next variety of product subcategories in complete throughout all 14 product classes at 186 subcategories in comparison with 179. We consider this highlights Dwelling Depot‘s benefit by having the next variety of product subcategories in complete. Although, Lowe‘s has been increasing its personal model portfolios resembling allen + roth and Stainmaster. However, we consider Dwelling Depot have a bonus over Lowe‘s with a better number of merchandise to draw and serve prospects.

Pricing

Apart from that, we additionally in contrast these corporations by way of their product pricing. Much like the earlier issue, we compiled the product itemizing worth for 14 chosen merchandise for every class and calculated the worth distinction between them.

Class

Product

Dwelling Depot ($)

Lowe’s ($)

Distinction

Home equipment

GE 4.8 cu. ft. Excessive-Effectivity White Prime Load Washing Machine with FlexDispense and Sanitize with Oxi, ENERGY STAR

899

999

-11%

Automotive

Battery Extender 12-Volt 1,200 Amp Battery Leap Starter

154

149

3%

Bathtub

Genta Single Gap Single-Deal with Lavatory Faucet in Chrome

263.85

292.62

-11%

Constructing Supplies/Provides

Quikrete 20 lb. Hydraulic Water-Cease Cement Concrete Combine

15.37

24.48

-59%

Flooring

BrucePlano Oak Gunstock 3/4 in. Thick x 3-1/4 in.

4.39

5.29

-21%

{Hardware}

Tapcon1/4 in. x 3-1/4 in. Hex-Washer-Head Concrete Anchors (75-Pack)

31.98

31.98

0%

Heating & Cooling

8,000 BTU ENERGY STAR Window Good Room Air Conditioner

249

319

-28%

Vacation Decorations

6 ft. Downswept Douglas Fir Synthetic Christmas Tree with Clear Lights

250.55

323.99

-29%

Kitchen

KRAUSLoften All-in-One Twin Mount Drop-In Stainless Metal 33 in. 2-Gap Single Bowl Kitchen Sink

429.95

419.95

2%

Plumbing

ISPRINGCountertop Multi Filtration Ingesting Water Filter Dispenser

66.8

61.17

8%

Good Dwelling

TP-LINKAC1200 Wi-Fi Vary Extender

49.98

49.98

0%

Storage & Group

ClosetMaid SuperSlide 48 in. W x 12 in. D Wire Fastened Mount Shelf Equipment with Closet Rod

37.98

41.78

-10%

Instruments

DEWALTATOMIC 20-Volt MAX Cordless Brushless Compact 1/2 in. Drill/Driver, (2) 20-Volt 1.3Ah Batteries

159

159

0%

Doorways & Home windows

KwiksetJuno Satin Nickel Exterior Entry Door Knob and Single Cylinder Deadbolt Combo Pack That includes SmartKey Safety

47.97

50.97

-6%

Common

-12%

Supply: Dwelling Depot, Lowe‘s

Within the desk, Dwelling Depot had decrease pricing for 8 of the 14 complete merchandise than Lowe‘s. The common pricing for all merchandise was 12% decrease than Lowe‘s. Although, 3 out of the 14 merchandise had been the identical worth. Thus, we consider this might present Dwelling Depot with a pricing benefit for its merchandise to make it extra aggressive and entice prospects.

Distribution and Logistics

Lastly, each corporations have massive distribution programs to deal with and fulfil their prospects‘ orders and purchases. We in contrast each corporations‘ distribution and logistics capabilities based mostly on their supply instances and the variety of distribution facilities to find out which has a greater distribution system. Furthermore, each corporations had launched BOPIS to prospects to buy on-line and decide up from shops. Thus, we in contrast the variety of retailer places to find out which firm has a bonus with extra places.

Distribution and Logistics

Dwelling Depot

Lowe‘s

Supply Time

Common 4 Enterprise Days

Common 2.5 Enterprise Days

Distribution Centres

90

15

Variety of Shops

2,317

1,971

Supply: Dwelling Depot, Lowe‘s

Based mostly on the desk above, Lowe‘s said supply time is comparably shorter than Dwelling Depot and even offers same-day supply companies as effectively. Nevertheless, by way of distribution facilities, Dwelling Depot have the next variety of amenities in comparison with Lowe‘s. Moreover, Dwelling Depot even have a bigger retailer footprint with the next variety of shops which we consider bodes effectively for its BOPIS companies.

All in all, whereas we see Lowe‘s having a bonus in buyer opinions, we decided that Dwelling Depot have a better product choice, extra aggressive pricing and higher distribution which we consider may present it with a bonus over Lowe‘s.

Service Functionality

Benefit

Buyer Critiques

Lowe‘s

Product Vary

Dwelling Depot

Pricing

Dwelling Depot

Distribution and Logistics

Dwelling Depot

General

Dwelling Depot

Supply: Dwelling Depot, Lowe‘s, Khaveen Investments

Firm Financials

For the final level, we in contrast each corporations by taking a look at their income progress, revenue margins, revenue per retailer and progress, internet debt, credit score ratios and money stream.

Profitability

The primary half we appeared into for each corporations was by way of their profitability as measured by their gross, working and internet margins based mostly on their 10-year historic common.

Profitability

Dwelling Depot

Lowe’s

Gross Margins (10-year common)

34.13%

33.5%

Working Margins (10-year common)

13.66%

9.25%

Web Margins (10-year common)

8.65%

5.2%

Supply: Dwelling Depot, Lowe‘s

In response to the desk above, each corporations have constructive earnings. Nevertheless, Dwelling Depot is superior to Lowe‘s with margins on a 10-year foundation. Its gross, internet and working margins had been all greater than Lowe‘s which we consider offers it with a bonus over Lowe‘s.

home depot earnings and margins

Dwelling Depot, Khaveen Investments

Lowe

Lowes, Khaveen Investments

Monetary Well being

Apart from profitability, we in contrast each corporations by their monetary well being by way of their internet debt and credit score ratios together with EBITDA curiosity protection, FCF curiosity protection and EBITDA/Web Debt.

home depot net debt

Dwelling Depot, Khaveen Investments

For Dwelling Depot, the corporate had a internet debt of $57.7 bln in 2021 which was 18.1% of its market cap. Its internet debt had steadily elevated up to now 10 years whereas its money to debt ratio declined.

lowe

Lowes, Khaveen Investments

As compared, Lowe‘s had a decrease internet debt of $36.6 bln however is greater by way of % of market cap at 26.4%. Much like Dwelling Depot, its internet debt had elevated up to now 10 years.

Credit score Ratios

Dwelling Depot

Lowe’s

Web Debt ($ mln)

57,767

36,632

Web Debt as % of Market Cap

18.10%

26.40%

EBITDA curiosity protection (10-year Common)

18.02x

12.69x

FCF curiosity protection (10-year Common)

9.52x

6.63x

EBITDA/Web Debt (10-year Common)

0.51x

0.37x

Supply: Dwelling Depot, Lowe‘s

Shifting to their credit score ratios, usually, Dwelling Depot had higher credit score ratios as its EBITDA and FCF curiosity protection in addition to EBITDA/Web Debt had been greater than Lowe‘s. General, we consider that Dwelling Depot has a bonus over Lowe‘s as its internet debt as a % of market cap is decrease than Lowe‘s indicating its comparatively much less danger and supported by Dwelling Depot‘s higher credit score ratios.

Money Flows

Lastly, we in contrast the businesses by way of their money stream technology skills as measured by their FCF margins.

home depot cash flows

Dwelling Depot, Khaveen Investments

Dwelling Depot had a median FCF margin of 8.3% and had been growing up to now 10 years.

lowe

Lowes, Khaveen Investments

As compared, Lowe‘s had a median FCF margin of 6.1% and had been growing up to now 10 years.

Money Circulate

Dwelling Depot

Lowe’s

FCF ($ mln)

13,328

8,281

FCF Margin (10-year)

8.3%

6.1%

Capex as % of Income (10-year common)

1.9%

1.9%

FCF per Share ($)

12.90

12.52

Supply: Dwelling Depot, Lowe‘s, Khaveen Investments

Based mostly on the desk, Dwelling Depot had greater FCF margins and likewise a decrease capex as a % of income. Equally, its 10-year common FCF margins had been additionally greater than Lowe‘s. Moreover, its FCF per share is greater than Lowe‘s. General, we consider Dwelling Depot is superior to Lowe‘s by way of its money flows.

To conclude, as Dwelling Depot had higher profitability with greater margins and revenue per retailer, decrease internet debt and strong credit score ratios in addition to greater FCF margins, we consider Dwelling Depot edges out over Lowe‘s by way of financials.

Firm Financials

Benefit

Profitability

Dwelling Depot

Monetary Well being

Dwelling Depot

Money Flows

Dwelling Depot

General

Dwelling Depot

Supply: Khaveen Investments

Threat: Competitors from E-commerce Firms

Each Dwelling Depot and Lowe‘s had been comparatively late to undertake e-commerce and rely totally on their bodily shops for enterprise. With the rise of e-commerce, we consider these corporations may very well be confronted with better competitors.

us retail e-commerce share of retail sales

eMarketer

In response to eMarketer, the share of e-commerce gross sales is forecasted to extend to 23.6% by 2025 from 11% in 2019. For instance, Amazon (AMZN) which is the most important e-commerce firm within the US with a 41% market share had expanded into dwelling enchancment retail. We consider that this might pose a danger to each Dwelling Depot and Lowe‘s progress outlook with elevated competitors from e-commerce rivals.

Valuation

Dwelling Depot

To worth the corporate, we used a DCF valuation as we count on the corporate to proceed having constructive FCFs. We summarized our income projections for the corporate within the desk beneath.

Income Projections

2020

2021

2022F

2023F

2024F

2025F

2026F

Dwelling Depot Shops

2,296

2,317

2,329

2,341

2,352

2,364

2,376

Development %

15.7%

0.9%

0.5%

0.5%

0.5%

0.5%

0.5%

Dwelling Depot Gross sales per Retailer

57.5

65.2

69.9

74.1

77.9

81.1

83.6

Development %

3.6%

13.4%

7.1%

6.1%

5.1%

4.1%

3.1%

Dwelling Depot Income ($ mln)

132,110

151,157

162,705

173,500

183,268

191,744

198,684

Development %

19.9%

14.4%

7.6%

6.6%

5.6%

4.6%

3.6%

Supply: Dwelling Depot, Khaveen Investments

We derived our trade common EV/EBITDA a number of based mostly on its rivals with a median of 15.22x.

industry average EV/EBITDA

Searching for Alpha, Khaveen Investments

Based mostly on a reduction price of 9%, our mannequin exhibits its shares are undervalued by 11%.

home depot valuation

Khaveen Investments

Lowe‘s

Equally, we valued Lowe‘s with a DCF valuation with our income projections summarized beneath.

Income Projections

2020

2021

2022F

2023F

2024F

2025F

2026F

Lowe’s Shops

1,974

1,971

1,998

2,025

2,052

2,080

2,108

Development %

-0.2%

-0.2%

1.3%

1.3%

1.3%

1.3%

1.3%

Lowe’s Gross sales per Retailer

45.4

48.8

51.3

53.3

54.9

55.9

56.5

Development %

24.4%

7.6%

5.0%

4.0%

3.0%

2.0%

1.0%

Lowe’s Income ($ mln)

89,597

96,250

102,385

107,874

112,564

116,317

119,016

Development %

24.2%

7.4%

6.4%

5.4%

4.3%

3.3%

2.3%

Supply: Lowe‘s, Khaveen Investments

Based mostly on a reduction price of 9.8%, our mannequin exhibits its shares are pretty valued.

lowe

Khaveen Investments

Valuation

Worth Goal

Upside

Score

Dwelling Depot

$ 335.46

11.12%

Purchase

Lowe’s

$ 207.95

2.74%

Maintain

Supply: Khaveen Investments

Verdict

Market Management

Dwelling Depot

Market Share

Dwelling Depot

Geographic Income

Dwelling Depot

Gross sales Metrics

Dwelling Depot

Service Functionality

Dwelling Depot

Buyer Critiques

Lowe‘s

Product Vary

Dwelling Depot

Pricing

Dwelling Depot

Firm Financials

Benefit

Profitability

Dwelling Depot

Monetary Well being

Dwelling Depot

Money Flows

Dwelling Depot

Valuation

Dwelling Depot

General

Dwelling Depot

Supply: Khaveen Investments

To summarize, we analyzed each corporations as the 2 largest dwelling retail enchancment retailers. For the primary level, we examined the businesses and decided that Dwelling Depot had an edge over Lowe‘s with its dominant market share of 28% to Lowe‘s share of 18%. Each corporations are extremely depending on the US which accounts for almost all of their revenues however Dwelling Depot had barely higher worldwide publicity. Moreover, we consider Dwelling Depot is superior to Lowe‘s with higher gross sales and working metrics resembling gross sales per retailer, retail sq. foot, and common ticket dimension which had been all bigger than Lowe‘s.

Moreover, we consider Dwelling Depot has a bonus in saving prospects regardless of Lowe‘s barely higher buyer opinions. This is because of its wider product choice as we analyzed 14 product classes and located Dwelling Depot to have 4% extra product subcategories than Lowe‘s. As well as, we discovered Dwelling Depot to derive a pricing benefit by means of our evaluation of 14 product classes with a distinction of 12%. We additionally consider that Dwelling Depot has higher distribution and logistics programs with the next variety of amenities and shops for its BOPIS companies.

Lastly, by way of financials, we discovered Dwelling Depot‘s financials to be superior by way of profitability with greater margins, higher money flows, and a stronger monetary place with a decrease internet debt as a % of market cap. General, we consider Dwelling Depot to be a greater dwelling enchancment retailer. We price Dwelling Depot as a Purchase with a goal worth of $335.46 and Lowe‘s as a Maintain with a $207.95 worth goal.



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