Profits soared 18%, helped by continued margin improvements including a year-over-year, 20-basis-point climb in gross margin. Operating margin expanded by 130 basis points contributing to a 22% surge in operating income. The company earned $1.22 billion, or 83 cents per share, which beat Street estimates by 8%. Equally impressive was the company posted a solid 4.3% growth in overall comps, which is the metric that tracks sales performances of stores that have been opened at least one year. Just to give you an idea of how impressive this is, Lowe's just posted 70 basis-point decline in comps while Wal-Mart U.S. comps dropped 1.4%.
While both companies have produced solid returns over the years and offer two of the best yields on the market, it's still hard to believe the divergence seen in this quarter in terms of performance will continue for the next two to five years. Although Home Depot's earnings report demonstrated the strength in its management team, I expect Lowe's to catch up. This is no slight at Home Depot but the market is still pricing the stock at a premium that still seems too rich for me. I'm not suggesting current investors shouldn't anticipate more gains from Home Depot, but I nonetheless believe shares of Lowe's, which seem undervalued, will outperform shares of Home Depot in the next five years. Lowe's only has to improve in areas such merchandising and show slightly-to-better comp growth. At the time of publication the author had no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.