Deutsche Bank Pits Home Depot Vs. Lowe's

Why are margins at Home Depot Inc (NYSE: HD) higher than Lowe's Companies, Inc. (NYSE: LOW)? Deutsche Bank analysts ask that question in their "Call of the Week," arguing that Lowe's lower operating margins are actually a positive for the stock – a factor that underpins the firm's Buy rating on Lowe's.

Specifically, Home Depot's cost per employee is $42,922, 9 percent lower than Lowe's cost of $46,759. The Deutsche Bank analysts point to the fact that a larger percentage of Lowe's workforce is comprised of full-time employees when compared with Home Depot.

However, the good news for Lowe's shareholders is that the operating margins gained 80 bps in 2014, with additional opportunity ahead as "sales leverage should help them leverage what looks like an elevated expense structure."

Home Depot gained 9.5 percent this year. Lowe's added 9.1 percent. On a 52-week basis, Lowe's is higher by nearly 55 percent and Home Depot has gained 46 percent.