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Will Marvin Ellison’s Initiatives Spark a Turnaround for Lowe’s?

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LOW’s performance

Last year was a tough one for home improvement retailers. The SPDR S&P Homebuilders ETF (XHB), which tracks home improvement and furnishing companies, fell 26.5%.

Skepticism surrounding increased interest rates and the weak housing market led to a fall in the stock prices of home improvement retailers in the year.

During the period, Lowe’s Companies (LOW) stock fell 0.6%. In comparison, peers Home Depot (HD), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) returned -9.3%, -2.4%, and -48.5%, respectively.

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Although Lowe’s failed to meet analysts’ same-store sales growth expectations—a key sales indicator for retailers—in the first three quarters of 2018, the fall in its stock price was minimal compared to the falls of its peers. Optimism surrounding the turnaround initiatives of Marvin Ellison, who joined Lowe’s as its CEO in July 2018, and the announcement of a new $10 billion share repurchase program by the company’s management in December supported its stock price.

Year-to-date performance

Lowe’s has started 2019 on a positive note, with its stock rising 1.7% year-to-date as of January 16. The surge in job growth and wage inflation in December and the Fed’s toning down its aggressive rate hike stance appear to have increased investors’ confidence, boosting the company’s stock price. During the same period, its peers Home Depot, Williams-Sonoma, and Bed Bath & Beyond have returned 3.0%, 4.0%, and 31.4%, respectively.

Series overview

In this series, we’ll look at analysts’ recommendations for Lowe’s. We’ll also discuss Lowe’s strategies to drive its sales and analysts’ revenue and EPS expectations for 2018 and 2019. Let’s first look at the company’s valuation compared to its peers’.

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