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Investment thesis

The COVID-19 pandemic in fiscal 2020 and 2021 triggered six years’ worth of revenue growth for The Home Depot, Inc (NYSE: HD) and Lowe’s Companies, Inc. (NYSE: LOW). Its valuations have also regularly rose over the past five years, proving its growing relevance as a staple stock, while other pandemic stocks have plunged after reopening. Moreover, given the stable dividend yields of Home Depot and Lowe’s, long-term investors are well protected against continued inflation and rising interest rates.

Given their growth trajectories, investors can be sure to buy and forget both stocks over the next five years.

The pandemic pushed forward six years of revenue growth

Home Depot Revenue, Net Profit and Profit Margin

Home Depot Revenue, Net Profit and Profit Margin

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Prior to the COVID19 pandemic, Home Depot grew its revenue at a CAGR of 5.23% since fiscal 2016. However, over the past two years, the company’s revenue has grown at an impressive rate at a CAGR of 17.1%, with revenue of $132.11 billion in fiscal 2020 with growth of 19.8% year-over-year and $151.15 billion in fiscal 2021 with growth of 14, 4% YoY. Consequently, its net income has also increased exponentially over the past two years, from $11.2 billion in fiscal year 2019 to $16.4 billion in fiscal year 2021, with a relatively stable net income margin of around 10%. Additionally, Home Depot has generated impressive free cash flow over the past two years with $14.01 billion in FCF in fiscal 2021, despite massive long-term debt of $33.57 billion. . However, its FCF margins have fallen slightly given the increasing investments in its supply networks, namely: by chartering its own vessels to cope with port bottlenecks during the End of year season 2021.

Home Depot FCF, Long Term Debt and FCF Margin

Home Depot FCF, Long Term Debt and FCF Margin

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Lowe’s revenue, net profit and profit margin

    Lowes Sales, Net Income and Net Income Margin

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On the other hand, Lowe’s revenue growth was at a CAGR of 3.53% from fiscal 2016 to fiscal 2019, which improved to 15.51% over the past two years during the COVID-19 pandemic. Its net income also doubled from fiscal 2019 to $8.44 billion in fiscal 2021, while improving its net income margins from 5.9% in fiscal 2019 to 8.8% in fiscal year 2021. Similarly, Lowe’s also generated a strong FCF of $8.26 billion in fiscal year 2021, but with growing long-term debt worth $23.32 billion. Similar to Home Depot, its margins had also declined slightly in fiscal 2021 as the company invests more in its supply chain networks in light of global shortages, through regional networks and Fslatted bed distribution centers and last mile delivery capabilities.

Lowe’s FCF, long-term debt and FCF margin

Lowes FCF, long-term debt and FCF margin

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Revenue growth at Home Depot and Lowe’s is primarily attributable to the proliferation of DIY home improvement projects during the COVID-19 pandemic lockdowns in the United States. In addition, the pandemic has led to an increase in US domestic demand despite limited supply and, consequently, a spike in prices for 111% in Q1’20 130.5% in Q4’21, due to many reasonsincluding large stimulus checks, low mortgage rates and remote work from home trends.

Going forward, given that the United States accounted for over 90% of Home Depot and Lowe’s revenue segment, we believe their future growth will be somewhat insulated from the ongoing war in Ukraine, although it there may still be headwinds due to global supply chain issues, rising transportation and labor costs, and slowdown in the housing market in the USA.

Is it still a buy for dividend investors?

Home Depot and Lowe’s Dividend Yield and Stock Prices

Home Depot and Lowes Stock Dividend Yield And Stock Price

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Despite the recent market correction, we should also note that Home Depot and Lowe’s stocks have a noticeable upward trend over the past five years of 232% and 270%, respectively, similar to many basic stocks. , such as Costco (COST), Walmart (WMT) and CVS (CVS). In contrast, many high-growth pandemic stocks, such as Airbnb (ABNB), Netflix (NFLX) and Teladoc (TDOC), had fallen significantly to their pre-pandemic prices. Additionally, Home Depot and Lowe’s have maintained relatively stable dividend yields over the past five years. As a result, they look very attractive to long-term investors looking for stable, inflation-proof stocks.

Home Depot and Lowe’s share outstanding shares

Home Depot and LOW Shares outstanding

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Still, if we have to pick just one, we think Lowe’s would be a better buy, given its stock market return of 64.4% over the past five years, although Home Depot is also doing well with 29 %. However, given that both companies have implemented aggressive stock buyback programs over the past five years, long-term investors in Home Depot and Lowe’s would have seen their shares increase in value by 14.3% and 23.9% over the past five years, respectively. . It is obvious that the two companies work perfectly.

So is Home Depot and Lowe’s Stock a buysell or keep?

Home Depot and Lowe’s Projected Revenues

Home Depot and Lowes Stock Buy, Sell or Hold

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The Home Depot is expected to grow revenue at a CAGR of 3.06% over the next five years, while reporting revenue of $153.96 billion for fiscal year 2022, representing increases of 1.8% in year-on-year. Despite normalizing revenue growth going forward, the company is still expected to report impressive net income of $16.53 billion for fiscal 2022, in line with its levels for fiscal 2021. On the other hand, Lowe’s is expected to experience revenue growth at a CAGR of 2.85% over the next five years. For fiscal 2022, consensus estimates the company will report revenue of $98.21 billion and net revenue of $8.7 billion, representing a year-over-year increase of 2% and 3%, respectively. .

The Home Depot is currently trading at EV/NTM revenue of 2.3x, in line with its 3-year average of 2.56x. The stock is also trading attractively at $300.21 on April 18, 2022, near its 52-week low of $293.59 and down 40% from its one-year high of 416. $.18. Similarly, Lowe’s is trading in line with its 3-year average of 1.63x, at $197.72 on April 18, 2022. The stock has also fallen 33.1% from its 52-week high at 261 $.38 in December 2021.

Therefore, we rate Home Depot and Lowe’s stocks as a buy.