Home Depot, Lowe’s Show Strength Despite Weak Market

Despite the continuing housing slump, both Lowe’s (NYSE:LOW)  and Home Depot (NYSE:HD) have been faring well recently, with both stocks gaining in the past week. Home Depot is trading near the high of its 52-week range, and Lowe’s has also been trending higher in the past few weeks. Both home improvement retailers can take some comfort from a recent survey that showed 68% of Americans plan to spend $1,000 on their homes in the next six months. In addition, 71% of those polled have spent money on their homes in the past 12 months, with 68% saying they spent the same or more than they spent prior to the recession. ^[1]

The $23 Trefis price estimate for Lowe’s and $40 price estimate for Home Depot are both slightly above the current market prices.

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Consumers Say Home Is Still Good Investment

The survey, released by the Meredith Corporation, found that despite the housing market downturn, 86% of homeowners feel owning home was a good investment. It also showed that consumers are not waiting for a bounce in the housing market to do home improvement projects. 41% of respondents said they are saving some money to make changes in their homes. ^[1]

That may mean good news for Home Depot and Lowe’s. According to Trefis estimates, slightly over a third of both companies’ stock prices are derived from the plumbing, electrical and kitchen divisions, which should fare better once housing bounces back.

Downward Shift in Large Projects for Homeowners

But the survey also had some sobering news for the companies: A downward shift in home project size has occurred. Only 17% of those polled expect to spend more than $1,000 in the next six months. It shows that the American consumer is continuing to be cautious about unnecessary spending on big projects.

Despite big projects being put on hold, Americans still feel the need to improve their homes and do necessary repairs. While both Lowe’s and Home Depot continue to get their financial houses in order, Home Depot is a few years ahead of Lowe’s in closing some of its stores. In 2008 and 2009, Home Depot closed some of its underperforming stores while Lowe’s just recently announced its closing of 20 underperforming stores. The charges will impact Lowe’s earnings into the future; in fact, Home Depot is still reporting costs associated with lease obligations on its closed stores, according to its latest filings.

Focus on Profitable Stores, Customer Service

Both companies are focusing on profitable stores and using new internet applications to improve customer service. Lowe’s has even added a new product line to its stores—snacks. The company now sells chips, pretzels, and candy bars to entice the customer at the checkout line. Whether these new items will add much to the company’s revenues remains to be seen, but both Home Depot and Lowe’s are doing whatever necessary to get consumers to spend.

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1. Meredith Corporation Releases New Survey on Homeowner Attitudes and Behaviors, PR Newswire, Oct 2011 [↩] [↩]