U.S. Hardlines Retail "HD/LOW - Uncovering A Strong Foundation - A..."

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U.S. Hardlines Retail "HD/LOW - Uncovering A Strong Foundation - A..."

Global Research

29 June 2026ab

U.S. Hardlines Retail Equities

AmericasHD/LOW - Uncovering A Strong Foundation - A

Normalized Earnings Analysis Retailers, Broadline

Michael Lasser

Analyst

michael.lasser@ubs.com

We believe HD and LOW's structural earnings power is latent. +1-212-713 2440

In a nutshell, we believe the earnings power of Home Depot and Lowe's has been Sachin Verma

obscured as of late. Following a prolonged period of macro headwinds, the market has Associate Analyst

been debating if this is the new normal. We don’t think it is. Rather, we think the sachin.verma@ubs.com

ongoing earnings power of HD and LOW is much higher than it is now. The industry +1-212-713 3492

downturn has been exacerbated by frozen housing turnover, elevated interest rates and Mark Carden

the deferral of discretionary big-ticket projects. But, these headwinds are cyclical in Analyst

nature. As a result, we think it’s best to look through the period of softness and focus on mark.carden@ubs.com

what HD and LOW are structurally capable of earning. If for no other reason, this is +1-212-713 3218

justification for why the stocks should trade at multiples that are higher than where they Dan Silverstein

have historically. Analyst

daniel.silverstein@ubs.com

As part of this analysis, we have deconstructed Home Depot and Lowe’s recent

+1-212-713 2459

sales per square foot and operating margins to dimension the impact of

acquisitions and inflation on these businesses. Adjusting for these factors, HD is on Mathew Rothway

Analyst pace to have sales per square foot of $493 this year. This is only modestly above

mathew.rothway@ubs.com

the $461 that this retailer achieved in 2019. In the case of Lowe’s, it is likely to