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Cramer Pits Lowe's Vs. Home Depot

Wednesday, 17 Aug 2011 | 6:42 PM ET
LOW to Follow HD? Cramer Explains
Insight on Home Depot's successful restructuring plan and whether Lowe's could follow suit, with Mad Money host Jim Cramer.

Great management can make all the difference at a company, Cramer said Wednesday.

Take Lowe's and Home Depot , for example. Although both home improvement retailers, each company posted very different quarterly results. On Tuesday, Home Depot delivered an upside surprise while Lowe's disappointed when it reported the day prior. In fact, Home Depot has consistently released better-than-expected earnings results while Lowe's has remained a laggard. For that reason, Cramer noted Home Depot's stock has held up better year-to-date with HD down 5.5 percent versus the 19.9 percent decline in LOW. Over the last 12 months, HD has posted a 21.3 percent gain while LOW is up just 2.5 percent.

"I recommended Lowe’s back on May 16 based on the theory that they would be able to catch up to Home Depot since the Depot is in the third year of a restructuring program that Lowe’s only just started," Cramer said. "However, that hasn’t happened and I think the reason is simple: execution."

One can see the difference in management by just looking at the numbers, Cramer said. Home Depot reported a 4 cent earnings beat off an 82 cent basis with revenues that rose 4.2 percent from last year. Lowe's, on the other hand, delivered a 2 cent earnings miss from a 66 cent basis while sales inched up just 1.4 percent. Home Depot gave upside guidance for the full-year while Lowe's gave disappointing downside guidance for the next quarter and whole year, too.

"There’s practically no metric where Home Depot isn’t crushing Lowe’s," Cramer said. "This, by the way, is why I always tell you to stick with best of breed stocks and ignore their also-ran competitors."

Selling for 10.8 times earnings versus 9.4 times earnings for Lowe's, Home Depot may have a higher price-to-earnings multiple, but Cramer thinks it's the stock to own. After all, he thinks Home Depot is "simply better than Lowe's at what they do."

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