Hopefully the management at Lowe's (NYSE:LOW) are racing fans, because it seems like NASCAR tracks are about the only place where Lowe's is really beating Home Depot (NYSE:HD) these days. While both companies are clearly pulling out of the depths of the one-two punch of the housing crash and recession, Home Depot seems to have pulled ahead in many operating metrics and this fiscal fourth quarter is a good opportunity to assess where these two rivals stand.

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Good Caps to the Year, But Better For HD
Both companies ended 2010 on solid notes, but Home Depot is likely to come away with the gold ring for this quarter. Home Depot saw revenue rise just under 4%, with comp growth of 3.9%. That comp growth, in turn, was comprised of average ticket growth of 2.6% (people buying more) and transaction volume growth of 1.4% (more people buying).

Without wanting to make too much out of it, it is notable that Home Depot saw comps fade throughout the quarter - a detail that would have been more concerning in the absence of pretty healthy guidance. It is also worth noting that "real" comp growth was more on the order of 2-2.5%, as the company benefited from a more aggressive position in appliances and a home improvement credit. (For more, see Analyzing Retail Stocks.)

While sales often capture all the attention when talking about retailers, Home Depot also distinguished itself on the bottom line. Gross margin ticked up slightly while excellent cost control on the SG&A line led to a nearly 43% jump in operating income and a nearly two-point improvement in operating margin.

Lowe's reported a similar 3% increase in revenue, but comp growth here was significantly lower - still positive, but up just 1.1%. Like Home Depot, Lowe's delivered positive operating leverage, but just not on the same scale. Gross margin ticked up a similar amount, but operating income growth was "only" 29% and the operating margin improvement was about 150 basis points.

The Road Ahead
For now, Home Depot appears to be winning the merchandising battle against Lowe's. Moreover, new product introductions from the likes of Deere (NYSE:DE) and Milwaukee Tools (owned and operated by Techtronic Industries (Nasdaq:TTNDY)) could help extend Home Depot's momentum through the spring and into summer.

Of course, Lowe's is not just standing around with its hands in its pockets; Lowe's is one of the most active trademark applicants around with brands like Kobalt (manufactured by Danaher (NYSE:DHR) and Cooper (NYSE:CBE)) and Olympic paint (manufactured by PPG Industries (NYSE:PPG)). What's more, Lowe's has really only begun its international expansion and Mexico and Australia look to be promising markets for several years.

The Bottom Line
Right now Home Depot has better comp growth and better margins, while Lowe's has a somewhat more compelling valuation. While metrics like price-to-sales or EV/EBITDA may suggest that Home Depot is getting more than its share of credit, I'm not so sure. Home Depot is also doing meaningfully better in terms of return on capital and long-term free cash flow margin and the gap between the two companies in a discounted cash flow analysis is less than 10%. Though Lowe's arguably has more room for growth than Home Depot, neither stock is a compelling bargain at today's prices, but adventurous investors should take a serious look at Techntronic. (For related reading, see 4 Types Of Home Renovations: Which Ones Boost Value?)

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