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Lowe's Marching Ahead of the Industry: What's Behind Rally?
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In the past three months, Lowe's Companies, Inc. (LOW - Free Report) has exhibited an impressive run in the index. The stock has not only outperformed the Zacks categorized Building Product-Retail/Wholesale industry but also the broader sector. In the said period, the stock has increased 15%, while the industry gained 11.3%. Meanwhile the broader Retail-Wholesale sector advanced 5.5%.
An improving job scenario, gradual recovery in the housing market and merchandising initiatives along with efforts to provide better omni-channel customer experience bode well for Lowe’s. It also remains well positioned to reap the benefits of strategic acquisitions done earlier such as that of Orchard Supply Hardware Stores, ATG Stores and RONA.
Stock on a Value Oriented Path
While the stock has outperformed the industry as well as the broader sector there is still a value-oriented path ahead, as validated by Value Score of “B”. Considering price-to-book (P/B) ratio, Lowe’s looks pretty attractive when compared with the industry. The stock has a trailing 12-month P/B ratio of 11.03, which is above its median level of 9.55 but below the high level of 11.29 scaled in the past one year. On the contrary, the trailing 12-month P/B ratio for the industry is 17.13.
Impressive Performance & Decent Outlook
We observed that after two straight quarters of earnings miss, the company posted positive earnings surprise of 8.9% in the final quarter of fiscal 2016. Net sales also beat the Zacks Consensus Estimate, after missing the same in the preceding two quarters.
The better-than-expected results prompted management to provide an encouraging outlook for fiscal 2017. Management now projects total sales growth of approximately 5% and expects comparable sales to increase about 3.5% during fiscal 2017. The company now anticipates fiscal 2017 earnings to be approximately $4.64 per share, up significantly from $3.99 posted in fiscal 2016.
Estimates Spiraling Upward
Following the sturdy results and upbeat outlook, the Zacks Consensus Estimate has been trending upwards. In the past 60 days, both the Zacks Consensus Estimate of $4.63 for fiscal 2017 and $5.23 for fiscal 2018 has increased 10 cents and 11 cents, respectively. Moreover, the Zacks Consensus Estimate for the first quarter of fiscal 2017 has jumped by 3 cents to $1.06 in the same time frame.
What Could Limit the Growth?
Analysts pointed that stiff competition from The Home Depot, Inc. (HD - Free Report) and cannibalization still remain matters of concern. Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels. This may negatively impact Lowe’s discretionary spending, and in turn its growth and profitability.
Builders FirstSource delivered an average positive earnings surprise of 45.4% in the trailing four quarters, while Fastenal has a long-term earnings growth rate of 16.3%.
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Lowe's Marching Ahead of the Industry: What's Behind Rally?
In the past three months, Lowe's Companies, Inc. (LOW - Free Report) has exhibited an impressive run in the index. The stock has not only outperformed the Zacks categorized Building Product-Retail/Wholesale industry but also the broader sector. In the said period, the stock has increased 15%, while the industry gained 11.3%. Meanwhile the broader Retail-Wholesale sector advanced 5.5%.
An improving job scenario, gradual recovery in the housing market and merchandising initiatives along with efforts to provide better omni-channel customer experience bode well for Lowe’s. It also remains well positioned to reap the benefits of strategic acquisitions done earlier such as that of Orchard Supply Hardware Stores, ATG Stores and RONA.
Stock on a Value Oriented Path
While the stock has outperformed the industry as well as the broader sector there is still a value-oriented path ahead, as validated by Value Score of “B”. Considering price-to-book (P/B) ratio, Lowe’s looks pretty attractive when compared with the industry. The stock has a trailing 12-month P/B ratio of 11.03, which is above its median level of 9.55 but below the high level of 11.29 scaled in the past one year. On the contrary, the trailing 12-month P/B ratio for the industry is 17.13.
Impressive Performance & Decent Outlook
We observed that after two straight quarters of earnings miss, the company posted positive earnings surprise of 8.9% in the final quarter of fiscal 2016. Net sales also beat the Zacks Consensus Estimate, after missing the same in the preceding two quarters.
The better-than-expected results prompted management to provide an encouraging outlook for fiscal 2017. Management now projects total sales growth of approximately 5% and expects comparable sales to increase about 3.5% during fiscal 2017. The company now anticipates fiscal 2017 earnings to be approximately $4.64 per share, up significantly from $3.99 posted in fiscal 2016.
Estimates Spiraling Upward
Following the sturdy results and upbeat outlook, the Zacks Consensus Estimate has been trending upwards. In the past 60 days, both the Zacks Consensus Estimate of $4.63 for fiscal 2017 and $5.23 for fiscal 2018 has increased 10 cents and 11 cents, respectively. Moreover, the Zacks Consensus Estimate for the first quarter of fiscal 2017 has jumped by 3 cents to $1.06 in the same time frame.
What Could Limit the Growth?
Analysts pointed that stiff competition from The Home Depot, Inc. (HD - Free Report) and cannibalization still remain matters of concern. Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels. This may negatively impact Lowe’s discretionary spending, and in turn its growth and profitability.
Zacks Rank &Stocks to Consider
Lowe’s currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the space include Builders FirstSource, Inc. (BLDR - Free Report) and Fastenal Company (FAST - Free Report) both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Builders FirstSource delivered an average positive earnings surprise of 45.4% in the trailing four quarters, while Fastenal has a long-term earnings growth rate of 16.3%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>