Long Lowes / Short Home Depot

I have gone long Lowes and short Home Depot. Home Depot is having a great week in anticipation of the hurricane but Lowes is less so. I put this trade on for the following reasons:

  • Lowes trades 20% cheaper based on 2013 estimates

  • Lowes is very slightly cheaper based on 2013 price to free cash flow. However, Lowes spends more on capex than Home Depot even though Home Depot is much larger. Shareholders of Sears can tell you that one can only neglect stores for so long.

  • Lowes just announced a large share repurchase for 20% of their shares.

  • Most of the gain from the hurricane has accrued to Home Depot. A hurricane is a one time event and I expect those gains to be reversed.

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