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On March 14, 2014, we issued an updated research report on Lowe's Companies Inc. (LOW - Analyst Report) following the company’s robust results for the fourth quarter of fiscal 2013, driven by the gradual recovery in the housing market.

Lowe’s posted adjusted earnings of 31 cents per share, in line the Zacks Consensus Estimate but rising 19.2% year over year. The stock witnessed a 5.6% rise in total revenue to $11,660 million and handily beat the Zacks Consensus Estimate of $11,645 million.

Moreover, Lowe’s provided a decent outlook for 2014. The company expects its sales and comparable-store sales to register year-over-year growth of approximately 5% and 4%, respectively. Operating margin is expected to improve nearly 65 basis points while effective tax rate is projected to be nearly 38.1%. On the basis of the above assumptions, Lowe’s anticipates its earnings for fiscal 2014 to be approximately $2.60 per share.  The Zacks Consensus Estimate stands at $2.63 for fiscal 2014.

As the world’s second largest home improvement retailer, Lowe’s remains well positioned to benefit from the housing market recovery, albeit at a slower pace. The company is now focused on closing underperforming stores. This, along with its strategy of transforming merchandise and enhancing shopping experience for customers will likely help to generate higher sales.

The company has implemented product resets in 1,400 stores and expects to extend it to the remaining stores by first half of fiscal 2014.  

Lowe’s is also actively managing its capital. The company is rationalizing its capital expenditures, including store-remerchandising efforts, to improve its return on investment. As a result, Lowe’s expects to generate substantial cash flow in the future.

Despite a year-over-year rise in its top and bottom lines, the stock has witnessed a downtrend in the Zacks Consensus Estimate. The Estimate for 2014 has fell 1.5% to $2.63 while for 2015, it went down 0.3% to $3.16 per share, over the last 30 days.

We believe that investors are still wary as the global economic environment has not completely recovered and spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer spending fully rebounds. Apart from this, Lowe’s operates in a highly competitive home improvement retailing business with players like The Home Depot, Inc. (HD - Analyst Report) and Beacon Roofing Supply, Inc. (BECN - Analyst Report), which is quite challenging.  

Currently, Lowe’s carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Another stock worth considering in the sector is Stock Building Supply Holdings, Inc. (STCK - Snapshot Report), which has a Zacks Rank #1 (Strong Buy).

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