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What to Expect from Lowe’s Q4 Earnings

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Lowe’s Companies (NYSE:LOW) will likely report its fourth-quarter earnings before the market opens on February 26. For the quarter, analysts expect the company’s revenue and EPS to rise.

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Lowe’s revenue will likely rise

For the fourth quarter, analysts expect Lowe’s to report revenue of $16.17 billion. The figure represents a rise of 3.3% from $15.65 billion in the same quarter of the previous year. The growth in the company’s same-store sales and online sales could drive its revenue. However, the declining store count could lower the company’s revenue. By the end of the third quarter of 2019, the company operated 2,004 stores compared to 2,015 stores at the end of 2018. The lower store count and closing underperforming stores in the fourth quarter could offset some of the revenue growth.

To attract more professional customers, Lowe’s is investing in providing job-lot quantities, improving its in-store experience, and appointing department supervisors. Also, the company is working to improve price perception by separating freight from product cost. Lowe’s management wants to improve its systems and processes, which would allow the company to add SKUs and drop-ship vendors quicker to expand its online assortment. The company is building capabilities to deliver specialty SKUs and improve customers’ experience. Along with these initiatives, deploying new mobile devices to store associates, rolling out the new customer-centric labor scheduling system at the end of the third quarter, and rolling out dedicated point-of-sale terminals for professional customers could drive the company’s SSSG.

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EPS to rise by double digits

Analysts expect Lowe’s to report an adjusted EPS of $0.91 in the fourth quarter—an increase of 14.2% from $0.80 in the same quarter of the previous year. The company’s higher revenue, improved in gross margin, lower D&A (depreciation and amortization) expenses, and share repurchases could drive its adjusted EPS during the quarter. However, higher operating and interest expenses and an increase in the effective tax rates could offset some of the gains. Lowe’s investments in growth initiatives could increase its operating expenses. In the first three quarters of 2019, the company repurchased 35.6 million shares for $3.65 billion. The company planned to repurchases $4.0 billion worth of shares in 2019. The share repurchases could lower the number of shares outstanding and drive the company’s EPS. Lowe’s effective tax rate could increase from 24.6% in the fourth quarter of 2018 to 25.6%.

Analysts’ recommendations for Lowe’s

Before the company’s fourth-quarter earnings, analysts favor a “buy” rating. Among the 31 analysts that follow Lowe’s, 74.2% recommend a “buy,” while 25.8% recommend a “hold.” None of the analysts recommend a “sell.” Overall, analysts have a consensus target price of $133.81, which represents a 12-month return potential of 8.6%.

Since the beginning of this year, Wells Fargo, Credit Suisse, and Jefferies have all raised their target prices. On February 14, Wells Fargo raised its target price from $135 to $140. In January, Credit Suisse increased its target price from $129 to $135, while Jefferies raised its target price from $141 to $143.

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Stock performance

As of Tuesday, Lowe’s was trading at $123.23, which represents a rise of 8.7% from $113.40 since it reported its third-quarter earnings. In the third quarter, the company missed analysts’ SSSG and revenue expectations. However, the company reported an adjusted EPS of $1.41, which beat analysts’ expectations of $1.35. Following the third-quarter performance, Lowe’s management raised its adjusted operating margin and EPS guidance for 2019. For more on the third-quarter performance, read Lowe’s Beats Q3 Earnings Estimate, Lifts EPS Outlook. Lowe’s stock price rose due to its strong third-quarter performance and analysts’ raising their 2020 EPS guidance.

After delivering strong returns of 33.4% last year, Lowe’s is trading 2.9% higher this year. Meanwhile, Home Depot (NYSE:HD), Williams-Sonoma (NYSE:WSM), and RH (NYSE:RH) have returned 11.7%,0.9%, and 18.1%, respectively. Home Depot will likely report its earnings on February 25. Read Can Home Depot’s Q4 Earnings Continue Its Upward Momentum? to learn more.

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