U.S. Hardlines Retail "HD/LOW - Solid Like Granite" Lasser

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U.S. Hardlines Retail "HD/LOW - Solid Like Granite" Lasser

Analyst

From a valuation perspective, we think both stocks offer attractive entry points, with HD joshua.bluestine@ubs.com

trading at ~20x NTM P/E and LOW trading at ~17x. With the 10-year Treasury rate +1-212-713 1297

hovering around 4.4%, we think that a reduction in interest rates can help push their

valuations higher. Over the long-term we believe that these stocks can sustain a higher

multiple even if they are no longer viewed as a referendum on interest rates. In this case,

we think the market can reward both HD and LOW with higher multiples as they deliver

outsized market share gains and steady comp growth as the category recovers. So, we

think the risk-reward is skewed to the upside for these two stocks.

HD and LOW could also see a benefit from tax refund as homeowners deploy

these dollars toward larger or discretionary home improvement projects.

Although, given the recent challenges around affordability, consumers may simply

choose to tuck this into savings.

Regarding the elevated oil prices, we don't think this materially impacted HD or

LOW's operating expenses in 1Q. This is largely due to timing, as the spike in oil

prices occurred towards the end of their fiscal first quarters. Although, their push

towards the pro channel of home improvement means that delivery capabilities

are becoming increasingly important. So looking ahead, the rise in fuel costs may

likely be an incremental headwind. Still, the retailers may still reiterate their

profitability outlook for the year as they find ways to offset these higher costs

through supply chain improvements and other mitigation factors.

HD likely saw stable demand trends in 1Q; it may slightly update its FY'26

guidance to reflect its recent acquisition