Analyzing Home Depot (NYSE:HD) and Best Buy (NYSE:BBY)

Best Buy (NYSE:BBY) and Home Depot (NYSE:HD) are both large-cap consumer discretionary companies, but which is the better investment? We will contrast the two companies based on the strength of their dividends, risk, analyst recommendations, valuation, institutional ownership, profitability and earnings.

Dividends

Best Buy pays an annual dividend of $3.84 per share and has a dividend yield of 3.9%. Home Depot pays an annual dividend of $9.32 per share and has a dividend yield of 2.9%. Best Buy pays out 63.9% of its earnings in the form of a dividend. Home Depot pays out 65.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Best Buy has increased its dividend for 22 consecutive years and Home Depot has increased its dividend for 16 consecutive years. Best Buy is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of recent ratings for Best Buy and Home Depot, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Best Buy	2	11	7	1	2.33
Home Depot	1	13	18	1	2.58

Best Buy presently has a consensus price target of $85.90, suggesting a potential downside of 11.97%. Home Depot has a consensus price target of $375.31, suggesting a potential upside of 17.84%. Given Home Depot’s stronger consensus rating and higher probable upside, analysts clearly believe Home Depot is more favorable than Best Buy.

Risk & Volatility

Best Buy has a beta of 1.26, indicating that its stock price is 26% more volatile than the S&P 500. Comparatively, Home Depot has a beta of 1, indicating that its stock price has a similar volatility profile to the S&P 500.

Institutional and Insider Ownership

81.0% of Best Buy shares are held by institutional investors. Comparatively, 70.9% of Home Depot shares are held by institutional investors. 0.5% of Best Buy shares are held by insiders. Comparatively, 0.1% of Home Depot shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares Best Buy and Home Depot’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Best Buy	3.01%	48.14%	9.16%
Home Depot	8.41%	106.42%	13.76%

Valuation and Earnings

This table compares Best Buy and Home Depot”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Best Buy	$41.69 billion	0.49	$1.07 billion	$6.01	16.24
Home Depot	$164.68 billion	1.93	$14.16 billion	$14.29	22.29

Home Depot has higher revenue and earnings than Best Buy. Best Buy is trading at a lower price-to-earnings ratio than Home Depot, indicating that it is currently the more affordable of the two stocks.

Summary

Home Depot beats Best Buy on 11 of the 17 factors compared between the two stocks.

About Best Buy

Best Buy Co., Inc. engages in the retail of technology products in the United States, Canada, and international. Its stores provide computing and mobile phone products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness products, portable audio comprising headphones and portable speakers, and smart home products, as well as home theaters, which includes home theater accessories, soundbars, and televisions. The company's stores also offer appliances, such as dishwashers, laundry, ovens, refrigerators, blenders, coffee makers, vacuums, and personal care; entertainment products consisting of drones, peripherals, movies, and toys, as well as hardware and software, and virtual reality and other software products; and other products, such as baby, food and beverage, luggage, outdoor living, and sporting goods. In addition, it provides delivery, installation, memberships, repair, set-up, technical support, health-related, and warranty-related services. The company offers its products through stores and websites under the Best Buy, Best Buy Ads, Best Buy Business, Best Buy Health, Buy Mobile, CST, Current Health, Geek Squad, Lively, Magnolia, Pacific Kitchen, Home, TechLiquidators, and Yardbird brands, as well as domain names comprising bestbuy.com, currenthealth.com, lively.com, techliquidators.com, yardbird.com, and bestbuy.ca. The company was formerly known as Sound of Music, Inc. Best Buy Co., Inc. was incorporated in 1966 and is headquartered in Richfield, Minnesota.

About Home Depot

The Home Depot, Inc. operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows. In addition, it provides tool and equipment rental services. The company primarily serves homeowners; and professional renovators/remodelers, general contractors, maintenance professionals, handymen, property managers, and building service contractors, as well as specialty tradesmen, such as electricians, plumbers, and painters. It sells its products through websites, including homedepot.com; homedepot.ca and homedepot.com.mx; blinds.com, justblinds.com, and americanblinds.com for custom window coverings; thecompanystore.com, an online site for textiles and décor products; hdsupply.com for maintenance, repair, and operations (MRO) products and related services; and The Home Depot stores. The Home Depot, Inc. was incorporated in 1978 and is headquartered in Atlanta, Georgia.