How Lowe’s Valuation Multiple Compares with Peers
For our analysis, we consider the forward PE (price-to-earnings) multiple due to the high visibility of Lowe’s Companies (LOW) earnings. We get a forward PE multiple by dividing the company’s stock price from analysts’ earnings estimates for the next four quarters.
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Lowe’s forward PE multiple
The expectation of a rise in Lowe’s sales due to recovery efforts after the devastations caused by hurricanes Harvey and Irma appears to have increased investors’ confidence, leading to a rise in Lowe’s stock price and forward PE multiple. As of November 13, 2017, Lowe’s was trading at 15.5x, compared to 15.2x before the announcement of its 2Q17 earnings.
On the same day, peers Home Depot (HD), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) were trading at forward PE multiples of 20.4x, 13.6x, and 7.0x, respectively. From the above graph, we can see that Lowe’s is trading above its peers’ median valuation multiple. As the world’s second-largest home improvement retailer, Lowe’s enjoys higher margins, which have allowed the company to trade at higher forward PE multiples than its peers.
To drive sales, Lowe’s has been focusing on increasing the breadth of its assortment, increasing its investments in marketing and customer-facing services, and implementing technological advancements. If these initiatives fail to generate expected sales, the increased expenses from these initiatives could pressure the company’s earnings.
For the next four quarters, analysts expect the company to post EPS growth of 11.3%, which might have already been factored into the company’s current stock price. If the company fails to meet analysts’ expectations, selling pressure could bring Lowe’s stock price and valuation multiples down.
Next, we’ll look at analysts’ recommendations.