WMT > HD

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The two largest companies reporting earnings this week are Home Depot (HD) and Walmart (WMT) and they both report Tuesday morning. In this blog, I want to compare the two stocks and make the case that WMT > HD in the current environment.

Let’s start with HD. Home Depot is the leading home improvement retailer in the country. If you want to fix your house, you’re probably going to HD. And that has been a very good thing for HD shareholders – until recently. With mortgage rates rising and housing prices looking toppy, now is not the time for HD – which is highly levered to the housing market.

While the chart has already started to price this in, let’s delve into the fundamentals. After reporting +11.4% comps in 2021, HD guided 2022 comps to only “slightly positive” in February. As a result, EPS growth is expected to be in the low single digits. At only 20x current year EPS guidance, you might think that HD is now a bargain – but it’s too early. The stock will likely continue to be under pressure as long as the housing market is – and that’s just beginning.

WMT is a whole different animal. The low price leader sells consumer staples i.e. necessities. While you might forgo that home improvement project if your house is losing value, you won’t stop buying the stuff WMT sells. You can see in the chart how WMT has held up better than HD.

While HD guided 2022 comps to “slightly positive”, WMT guided to “slightly above 3%” – a very strong number for it. WMT is slightly more expensive than HD at 22x current year EPS guidance – but it’s worth it. I’d much rather own a business geared to this type of macro environment than a cyclical one like HD.

In sum, HD and WMT are both household names and you might think it’s six of one or a half dozen of the other. But in reality, WMT is the much stronger stock going forward.

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