What Could Drive Lowe’s EPS in Q2 2018?

Analysts expect Lowe’s Companies (LOW) to post adjusted EPS of $2.02 in the second quarter of 2018, which represents a YoY (year-over-year) growth of 28.7% from $1.57. EPS growth will likely be driven by revenue growth, a lower effective tax rate, and share repurchases, partially offset by a lower EBIT (earnings before interest and tax) margin.

Analysts expect Lowe’s EBIT margin to fall from 12.2% in the second quarter of 2017 to 11.5% in Q2 2018. The decline could be due to the adoption of a new accounting standard, partially offset by a sales leverage from positive SSSG (same-store sales growth). The enactment of tax reforms is expected to lower Lowe’s effective tax rate to 25.7% compared to 36.2% in the second quarter of 2017.

Moving to share repurchases, Lowe’s has repurchased 17.1 million shares for $1.4 billion from the beginning of the third quarter of 2017 through the end of the first quarter of 2018. At the end of the first quarter, the company had $6.2 billion available under its share repurchase program.

For the second quarter, Home Depot (HD) posted EPS growth of 35.6%. Analysts are expecting Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) to post EPS growth of 12.1% and -35.4%, respectively.

Lowe’s management expects its 2018 EPS to be $5.40–5.50, which represents a growth of 23%–25.3% from $4.39 in 2017. For the next four quarters, analysts expect Lowe’s to post EPS of $5.58, which represents a growth of 22.6% from $4.55 in the corresponding four quarters of the previous year.

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