Pershing and Lowe’s
Lowe’s (LOW) is one of Pershing Square Holdings’ three largest holdings. Pershing declared its $1 billion stake in Lowe’s in the first quarter of 2018.
Lowe’s stock has risen 14.5% YTD (year-to-date) as of May 14 and outperformed the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA), which have returned 13.4% and 9.7%, respectively, during the same period. Home Depot (HD) stock has returned 12.0% YTD as of May 14. During the same period, Lowe’s other peers (XHB) Williams-Sonoma (WSM) and Bed Bath & Beyond (BBBY) have returned 6.0% and 27.5%, respectively.
Pershing expects Lowe’s to close the gap with Home Depot
In its first-quarter investor letter, Pershing Square mentioned that Lowe’s was making progress toward closing its performance gap with its direct competitor, Home Depot (HD). Lowe’s is currently trading at a PE ratio of 17x, while Home Depot’s PE is close to 19x. The fund believes that Lowe’s valuation doesn’t reflect the company’s significant profit improvement potential. It believes that Lowe’s stock has the potential to appreciate significantly as the impact of its business transformation becomes more evident over the course of the year.
Lowe’s first-quarter results
Lowe’s reported its first-quarter earnings results on May 22. The results were mixed, and the company cut its forecast for the year as higher costs weighed on its results. Its first-quarter same-store-sales increased 3.5%, higher than its estimate of 3.2%.