Monday, November 9, 2009

FBR likes Home Depot over Lowe's(HD, LOW)

This morning, FBR Capital said that while they see good results over the next year for Home Depot(HD) and Lowe's(LOW), they expect HD shares to be the better bet.

I'm never a fan of "if you have to own a stock in this sector, own this" research calls. But with fund managers' mandates meaning they MUST own a home improvement retailer, calls like this are common.

FBR likes HD stock more that LOW, due to higher upside potential to earnings per share estimates. They both trade at almost identical Price-to-Sales ratios of .66 times revenue, yet Home Depot has about twice the debtload of Lowe's.

Looking at the relationship between the shares, the strictly "quant" view would argue against this trade:

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