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What Caused Lowe’s Earnings to Rise in 1Q17?

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LOW’s 1Q17 earnings

For 1Q17, Lowe’s Companies (LOW) posted EPS (earnings per share) of $0.70, which includes $0.06 from the calendar week shift. Aside from special items, the company’s adjusted EPS stood at $1.03, which represents a growth of 18.4% over $0.87 in 1Q16. Analysts were expecting the company to post EPS of $1.06.

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LOW’s EPS growth

Lowe’s 1Q17 EPS was driven by revenue growth and share repurchases over the past 12 months. In the past 12 months, the company has repurchased shares worth $5 billion. In 1Q17 alone, the company had repurchased shares worth $1.2 billion. By the end of 1Q17, the company had approximately $3.8 billion under its share repurchase program.

From the above graph, you can see that over the past five quarters, the company has missed analysts’ estimates three times. When this happens, the stock price of a company falls. On May 24, 2017, Lowe’s stock price fell 3% on the announcement of its 1Q17 earnings.

Peer comparisons and outlook

In 1Q17, Home Depot (HD) and Williams-Sonoma (WSM) have posted EPS growth of 16% and -3.8%, respectively, while Bed Bath & Beyond (BBBY) is expected to post an EPS decline of 17.2%.

For the next four quarters, analysts are expecting Lowe’s to post EPS of $4.76, which would represent a growth of 15% from $4.14 in the corresponding quarters of the previous year. The company has set its EPS guidance for 2017 at $4.30, which represents a growth of 8% over $3.98 in 2016.

Lowe’s dividends

In 1Q17, Lowe’s announced a dividend of $0.35 with a dividend yield of 1.73% and at a payout ratio of 30.3%. For the next three quarters, analysts are expecting the company to pay dividends of $1.23, bringing the total for 2017 to $1.58, which would represent a growth of 18.8% over $1.33 in 2016.

Now let’s take a closer look at Lowe’s valuation multiple.

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