Lowe’s Stock: Can We Expect Upside Potential?

Rajiv  Nanjapla - Author

Nov. 29 2018, Updated 1:27 p.m. ET

Stock performance

As of November 28, Lowe’s (LOW) was trading at $93.69, which represents a rise of 2.6% since the announcement of its third-quarter earnings on November 20. Currently, the company is trading 15.4% higher than its 52-week low of $81.16 and 20.4% lower than its 52-week high of $117.70.

In the third quarter, which ended on November 2, Lowe’s posted an adjusted EPS of $1.04 on revenues of $17.42 billion. Lowe’s outperformed analysts’ EPS expectation of $0.98 and revenue estimate of $17.36 billion. However, the company’s SSSG (same-store sales growth) of 1.5% fell short of analysts’ expectation of 2.9%.

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During its third-quarter earnings call, Lowe’s management announced that the company intends to end its Mexican retail operations. The company has been evaluating strategic alternatives. Lowe’s also announced that it would exit its non-core businesses including Alacrity Renovation Services and Iris Smart Home. Accounting for the company’s strategic reassessments and its fourth-quarter expectation, Lowe’s lowered its sales and EPS guidance for 2018. The lower-than-expected third-quarter SSSG and reduced 2018 guidance caused the company’s stock price to fall to a low of $84.75 on November 20.

Since then, Lowe’s stock price has increased 10.5% due to investors’ optimism surrounding Marvin Ellison’s turnaround initiatives. Ellison became Lowe’s CEO in July. He has simplified the company’s organizational structure and made some important leadership appointments. He’s focusing on rationalizing the company’s store inventory. Ellison has been eliminating projects that aren’t adding value to Lowe’s core business.

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YTD performance

Lowe’s has returned 0.8% YTD (year-to-date). During the same period, Home Depot (HD) and Williams-Sonoma (WSM) have returned -6.4% and 10.2%, respectively. The broader comparative index, the SPDR S&P Homebuilders ETF (XHB), which invests 12.9% of its holdings in home improvement retailers, has fallen 19.4%, YTD.

Series overview

In this series, we’ll discuss analysts’ revenue and EPS expectations for 2018 and 2019. We’ll also discuss management’s guidance for 2018. Finally, we’ll look at analysts’ recommendations and Lowe’s valuation multiple.

Next, we’ll discuss analysts’ revenue expectations.


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