After Credit Suisse’s downgrade on October 17, Lowe’s Companies’ (LOW) stock price fell to a low of $101.39 before closing the day at $102.44, which represents a fall of 3.3% from its previous day’s closing price.
The company’s stock price was also negatively impacted by the Commerce Department’s announcement that the housing starts had declined by 5.3% on a seasonally adjusted annual rate to 1.201 million. Economists polled by Reuters had forecast housing starts of 1.220 million for the month. Investors fear that the decline in housing starts could lower the company’s sales.
Despite yesterday’s fall, Lowe’s is still trading 10.2% higher YTD. The company’s stock price was driven by optimism surrounding Marvin Ellison’s turnaround initiatives and its strong second-quarter earnings. Since joining Lowe’s as CEO in July, Ellison has simplified the company’s organizational structure and made some important leadership appointments. He’s focusing on rationalizing the company’s store inventory, eliminating projects that aren’t adding value to its core business, and has diverted $500 million worth of capital to a share repurchase program.
During the same period, peers Home Depot (HD), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have returned -2.3%, 18.8%, and -37.6%, respectively. Meanwhile, the broader comparative index, the SPDR S&P Homebuilders ETF (XHB), which has invested ~13.1% of its holdings in home improvement retailers, has declined 21.0% YTD.
As of October 17, Lowe’s was trading at a forward PE (price-to-earnings) multiple of 17.7x and its EPS is expected to rise 7.3% in the next four quarters. On the same day, peers Home Depot, Williams-Sonoma, and Bed Bath & Beyond were trading at a forward PE multiple of 13.8x and 7.7x, respectively.
Next, we’ll look at analysts’ EPS expectations for the next four quarters.