The two home improvement leaders rely upon many of the same factors for their respective trajectories, such as home prices, housing market data, weather, macro impacts, and consumer trends.
Foremost among the concerns will be comparable sales, which clearly could erode as weather impacts, which were blamed for Home Depot's flagging sales, will likely be cited much the same way by new Lowe's CEO Marvin Ellison for any weakness.
What's interesting is that the market knows this, yet both stocks recovered steadily from their weakness on Tuesday's open as this appears to be relatively unimpactful news.
"Bar is now lower for LOW," Morgan Stanley analyst Simeon Gutman said. "The average two quarter spread versus LOW suggests a U.S. comp of 0.7% for LOW and total comp of +0.1%. Both are below consensus."
Again, despite the recognition that Lowe's cannot sidestep the impact that Home Depot is citing, the market appears encouraged ahead of earnings. Far be it from me to place faith in the rationality of the market at present, but it would appear that investors care little about the expected fall in February sales numbers.
I would suppose that many are also encouraged by Home Depot's commentary on the defenses home improvement companies have set up to mitigate tariff concerns. A safe place for capital in the market given recent volatility can certainly be attractive.
What benefits Lowe's further is that the company is in the midst of a turnaround story and may be provided leniency for weaker numbers if its guidance can replicate the reiteration offered by Home Depot.
"Our view since Marvin has joined has stayed consistent: improvement will build gradually especially considering the supply chain and IT deficiencies and a slowing environment makes it more challenging to execute that turnaround as the tide recedes a bit," J.P. Morgan analyst Christopher Horvers wrote in a preview of earnings. "Positioning wise into the print, there is a wide divergence of investor opinions with some seeing the potential for LOW to out-comp HD and others seeing downside risk to our 2.7% [comp sales] forecast."
It would appear that the downside may be realized at this point, but the market isn't moving downward regardless.
The charts were also noted to be far more encouraging for Lowe's, meaning that any upside surprise that breaks Home Depot's mold could well be amplified.
To be sure, the market can indeed be irrational, and the shares could slip if enough significant metrics miss the mark, including same-store sales.
"I would stay on the sidelines with Home Depot and look to Lowe's if you are considering the space," Real Money's Tim Collins wrote in his earnings preview column. "That being said, I think a simple avoidance of the home improvement space is the way to go unless Lowe's report tomorrow reverses the view Home Depot provided on Tuesday."
We consistently say that trying to time earnings is a fool's errand, but Lowe's will certainly be one to watch on Wednesday.