^{Editor's note: All figures as of April 17, 2017, unless otherwise stated.}

Building season picks up in the United States each year as the weather gets warmer and tax refunds are deposited into bank accounts. The Home Depot, Inc. (HD) and Lowe's Companies, Inc. (LOW) are two well-known retailers that span the nation and are heavily influenced by home building activity. Both companies sell directly to builders and also have significant exposure to do-it-yourself remodeling, home improvement, landscaping and gardening. Therefore, it makes sense to examine the operations and 澳洲幸运5官方开奖结果体彩网:valuation of these peers at the onset of their busy season.

Both companies have a similar number of stores, but Home Depot is a larger company. Home Depot has more employees and nearly 50 percent more annual revenue, and its 澳洲幸运5官方开奖结果体彩网:market capitalization is $100 billion higher than that of Lowe's. This scale discrepancy can distort some head-to-head comparisons, and it is essential context for evaluating these rivals. (See also: 澳洲幸运5官方开奖结果体彩网:Better Buy: Home Depot or Lowe's?)

Home Depot and Lowe's have both grown steadily since the 澳洲幸运5官方开奖结果体彩网:financial crisis, with top-line expansion generally accelerating through the present. The retailers have traded positions as to which is the faster grower, but Home Depot notched a 澳洲幸运5官方开奖结果体彩网:comparable-store sales growth rate that was 140 澳洲幸运5官方开奖结果体彩网:basis points higher in fiscal 2016. Analysts are also more bullish on Home Depot's two-year sales outlook. Both companies are expected to achieve double-digit 澳洲幸运5官方开奖结果体彩网:earnings per share (EPS) growth over the next five years, although Lowe's has a 330 basis point edge in 澳洲幸运5官方开奖结果体彩网:analyst forecasts. (See also: Lowe's Marching Ahead of the Industry: What's Behind Rally?)

The retail chains have 澳洲幸运5官方开奖结果体彩网:gross margins that are similar and stable. Lowe's maintains a 40 basis point edge on this line and has bested Home Depot in nine of the past ten years. Gross margin for either company has only left the range between 33.5 percent and 35 percent one time in the past decade. Despite lagging slightly on gross margin, Home Depot's 澳洲幸运5官方开奖结果体彩网:operating margin is five percentage points higher, and that gap has grown every single year since 2009. This has helped drive Home Depot's 澳洲幸运5官方开奖结果体彩网:operating income, which is nearly 2.5 times hig♏her than that of Lowe's.

Home Depot also achieves superior 澳洲幸运5官方开奖结果体彩网:efficiency metrics. The company's 澳洲幸运5官方开奖结果体彩网:asset turnover of 5.11 bests its competitor's 1.98. This is largely driven by superior 澳洲幸运5官方开奖结果体彩网:inventory turnover. Home Depot's inventory turns stand at 5.11 versus Lowe's at 4.27. Home Depot has consistently held this advantage since 2008. The discrepancy can be attributed heavily to higher 澳洲幸运5官方开奖结果体彩网:revenue per square foot. Superior efficiency leads to higher 澳洲幸运5官方开奖结果体彩网:return on assets for Home Depot, and the difference in 澳洲幸运5官方开奖结果体彩网:return on equity is even larger because Lowe's relies far less on 澳洲幸运5官方开奖结果体彩网:debt financing. (See also: 澳洲幸运5官方开奖结果体彩网:How Is Asset Turnover Calculated?)

Home Depot's 澳洲幸运5官方开奖结果体彩网:capital structure is significantly more debt-intensive, and its 澳洲幸运5官方开奖结果体彩网:equity multiplier is nearly double that of Lowe's. This creates more risk for Home Depot equity holders in the case that a catastrophic event or a protracted lean period were to cripple the company. However, Home Depot has higher 澳洲幸运5官方开奖结果体彩网:liquidity ratios, which are important to monitor to assess risk in the case of severe short-term shocks. Neither company's financial health ratios indicate exceptional financial risk, but these are nonetheless important metrics to monitor. (See also: 澳洲幸运5官方开奖结果体彩网:Liquidity Measurement Ratios.)

Valuation analysis reveals a mixed bag, depending on which aspect investors choose to focus on. Home Depot is more expensive relative to 澳洲幸运5官方开奖结果体彩网:book value, 澳洲幸运5官方开奖结果体彩网:forward earnings and 澳洲幸运5官方开奖结果体彩网:free cash flow. The discrepancy in 澳洲幸运5官方开奖结果体彩网:PEG ratios is especially stark if 澳洲幸运5官方开奖结果体彩网:consensus estimates are used in the calculation. Lowe's is also slightly less expensive on an 澳洲幸运5官方开奖结果体彩网:enterprise-value to EBITDA basis. Home Depot has a materially higher 澳洲幸运5官方开奖结果体彩网:dividend yield, and its dividend growth rate implied by the 澳洲幸运5官方开奖结果体彩网:Gordon Growth Model is slightly lower, assuming analyst estimates are valid. (See also: 澳洲幸运5官方开奖结果体彩网:Dividend Hike on the Way at Home Depot.)

Overall, Home Depot has delivered superior performance in terms of profitability, efficiency and recent growth. It also carries a superior dividend yield for the time being. However, Lowe's trades at a discount on several valuation metrics, and analysts are more bullish about its EPS growth prospects. Both companies are enjoying strong 澳洲幸运5官方开奖结果体彩网:fundamentals as the U.S. economy improves, and their results will likely be dictated largely by cyclical forces moving forward. (See also: 澳洲幸运5官方开奖结果体彩网:Home Improvements That Really Pay Off.)