By Sabrina Escobar

Home Depot's solid fourth-quarter earnings report paved the way for a potentially stronger report from competitor Lowe's, due Wednesday morning.

The company topped earnings and sales expectations, and reiterated guidance for the current fiscal year. Despite the win, executives signaled that home-improvement demand remains stagnant due to inflation and high financing costs.

"Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns, and higher financing costs," said Richard McPhail, Home Depot's chief financial officer. "As we look ahead to fiscal 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity."

This sets a sober tone for Lowe's upcoming report, shifting investor focus from market speculation to core fundamentals -- which have been relatively strong in recent quarters.

Analysts expect Lowe's will post adjusted earnings of $1.94 a share on $20.3 billion in revenue. Same-store sales are projected to rise by 0.2% from the year-ago quarter, although after Home Depot's report, some investors think that figure will be higher.

In the past two quarters, Lowe's has posted stronger same-store sales growth than Home Depot has. Home Depot's same-store sales grew by 0.4% this quarter, better than expectations for a decline of 0.4%. If the trend continues, Lowe's could also post better-than-expected same-store sales growth.

Investors seem to be betting on that. The stock is up 16% this year to Home Depot's 13% gain, and it notched a record earlier this month. Despite that, Lowe's stock still trades at a discount to Home Depot, commanding a price-to-earnings ratio of 21.6 compared with Home Depot's 25.5 times earnings.

David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, says he prefers Lowe's over Home Depot given the stock's lower valuation and inroads in courting professional contractors.

To be sure, Home Depot derives a bigger portion of total revenue from Pro sales than Lowe's does, but under CEO Marvin Ellison, Lowe's has been racing to catch up. It recently acquired two companies that serve professional contractors, Artisan Design Group and Foundation Building Materials.

Jay Woods, chief strategist at Freedom Capital Markets, also thinks Lowe's risk/reward setup into earnings is more favorable.

"Own above $270 and hold on any rally," he wrote on Tuesday in emailed comments to Barron's. "Any continued push into the sector should see LOW's lead."

Lowe's stock was up 1.8% to $279.41 in early afternoon trading.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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February 24, 2026 13:32 ET (18:32 GMT)

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