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Home boom aids 2 retailers
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February 19, 1999: 6:09 p.m. ET
For Home Depot and Lowe's, surge in house building, renovations aids sales
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New York (CNNfn) - With the pace of home sales and construction moving at a record clip, it's no surprise that home-improvement retailers have flourished.
The two national companies, Atlanta-based Home Depot Inc. and North Wilkesboro, N.C.-based Lowe's Companies Inc. now operate more than 1,100 stores combined.
Helped by a buying blitz of items like paint, drywall and home decor, both retail giants saw 30 percent-plus earnings growth in the third quarter last year.
And with a stable near-term outlook for the housing market, analysts forecast a sound future for both companies.
"There's an extensive correlation between the success of Home Depot (HD) and Lowe's (LOW) and the booming house sector," said Alan Mak, an analyst with Argus Research.
Don Spindel, a retail analyst at A.G. Edwards, said the two companies "should certainly be continuing winners."
Housing construction is booming
This comes at a time when new home construction is soaring. Housing starts rose in January by the fastest pace in 12 years, jumping 3.8 percent to a seasonally adjusted annual rate of 1.8 million homes, the Commerce Department said. In 1998, 888,000 homes were sold, the most ever. Home sales frequently lead to home renovations.
Perhaps as a result, investors flocked to the two companies' shares. Shares of Home Depot jumped 107 percent in 1998, while Lowe's soared 114 percent. In contrast, the S&P 500 Index gained 27 percent on the year.
As such, the companies may not be considered bargains.
"They are both expensive right now," said Mark Mandel, a senior retail analyst with ABN AMRO.
However, Home Depot and Lowe's aren't the only beneficiaries of the boom. In fact, there are a number of less expensive stocks which are benefiting from the current boom.
Analysts mention peripheral home supply retailers like Bed, Bath & Beyond Inc (BBBY)and Williams-Sonoma (WSM). Their shares have at least doubled in the last 52 weeks but are still in the mid-30's.
Even closer to the source are builders themselves: firms like Pulte Corp (PHM), Centex Corp (CTX). and Kaufman & Broad Home Corp (KBH). 
-- by staff writer Jake Ulick
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