Lowe's Companies, Inc. (LOW) May Finally Get the Best of Home Depot Inc (HD)

Wayne Duggan

Earnings season may be winding down, but the two giants of the U.S. home improvement sector have still yet to report. Home Depot Inc (NYSE: HD) is expected to report on Wednesday morning, and competitor Lowe's Companies, Inc. ( LOW) will report exactly one week later.

So far, 2017 has been the year of Home Depot, which has more than doubled Lowe's 9 percent year-to-date gain by returning 22.3 percent on the year. Home Depot has also consistently outpaced Lowe's when it comes to same-store sales growth.

[Read: 9 Ways for Investors to Cash In on Home Improvement.]

KeyBanc analyst Bradley Thomas says investors should expect more of the same from best-in-class home improvement retailer Home Depot in the third quarter. However, he says Lowe's may actually be the better investment from a valuation perspective.

KeyBanc is calling for Lowe's to report third quarter earnings of $1.03 per share, slightly ahead of consensus estimates of $1.02. The firm is also expecting a slight revenue beat of $16.68 billion compared to consensus expectations of $16.55 billion. KeyBanc is forecasting same-store sales growth of 5 percent.

For Home Depot, KeyBanc is looking for EPS of $1.82 on revenue of $24.59 billion, modest beats compared to consensus estimates of $1.81 and $24.48 billion. KeyBanc is also calling for same-store sales growth of 6 percent.

While Home Depot will likely once again outperform Lowe's in same-store sales growth for the sixth consecutive quarter, Thomas says HD stock may have limited upside remaining after gaining nearly 68 percent in the past three years.

"We believe the stock's appreciation and current valuation could limit upside for the next six to 12 months and we would look to get more constructive at a better valuation," Thomas says of Home Depot.

[Read: The 10 Best Dividend Stocks to Buy.]

Lowe's, on the other hand, may have room to run.

"We believe shares are compelling given the fundamental growth opportunity for the company, and expect LOW shares would warrant multiple expansion if execution improves and comps accelerate," Thomas says.

KeyBanc has an "overweight" rating and a $98 price target LOW stock. The firm has a "sector weight" rating and no target for HD stock.

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.