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Why Was Lowe’s 2Q17 EPS Lower than Analysts’ Estimates?

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2Q17 performance

Lowe’s Companies (LOW) posted EPS (earnings per share) of $1.68 in 2Q17. After removing one-time items, the company’s adjusted EPS stood at $1.57, which represents growth of 14.6% from $1.37 in 2Q16. However, analysts were expecting the company to post EPS of $1.61.

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EPS growth

The company’s EPS growth is expected to be driven by revenue growth, expansion of net margins, and share repurchases. During the last four quarters, the company has repurchased $5.1 billion of shares. Share repurchases boost the company’s EPS by lowering the number of shares outstanding. As the above graph shows, we can see that Lowe’s has failed to meet analysts EPS estimates four times in the last five quarters. When this happens, the stock price of the company tends to fall. On August 23, 2017, Lowe’s stock price fell 3.7%.

Peer comparisons

During the same period, Home Depot (HD) and Williams-Sonoma (WSM) posted EPS growth of 14.2% and 5.2%, respectively. Analysts are expecting Bed Bath & Beyond’s (BBBY) EPS to fall 14.6% during the quarter.

Outlook

After posting its 2Q17 earnings, the company lowered its 2017 EPS guidance to be in the range of $4.20 to $4.30 from the earlier guidance of $4.30. The guidance includes the assumption that the company will repurchase shares worth $3.5 billion in 2017. The company’s management has cited increased investments on marketing and customer-facing services for the lowered guidance.

For the next four quarters, analysts are expecting Lowe’s to post EPS of $4.82, which represents growth of 11.1% compared to $4.34 in the corresponding four quarters of the previous year.

Next, we will look at Lowe’s valuation multiple.

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