Earnings Scorecard: Lowe's

Lowe’s Companies Inc. ( LOW - Analyst Report ) , the world’s second-largest home improvement retailer, reported its second-quarter 2012 earnings on August 20, 2012. The Wall Street analysts deliberated over the earnings results for almost a week and eventually made their estimate revisions. Below, we will cover the results of the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Report Review

Lowe’s posted second-quarter 2012 earnings of 65 cents per share, which includes the negative impact of 3 cents related to a shift in comparable weeks but excludes a charge of 1 cent related to reduction in headcounts.

Excluding the negative impact of shift in comparable weeks, earnings came in at 68 cents. The Zacks Consensus Estimate for the quarter was of 70 cents a share.

Net sales for the quarter dropped 2% to $14,249 million from $14,543 million delivered in the year-ago quarter. Ashift in the comparable week resulted in $259 million or 1.8% of the decline in sales. Analysts polled by Zacks had expected revenue of $14,421 million.

(Read our full coverage on this earnings report: Lowe's Misses, Trims Outlook)

Earnings Estimate Revisions- Overview

Since the earnings release, estimates for Lowe’s displayed a downtrend, as analysts remain disappointed. Also, they remain skeptical over the performance of the company in the upcoming quarters.

Agreement of Estimate Revisions

Clearly, a negative sentiment is evident among analysts, as in the last seven days, 18 out of 19 estimates have been revised downwards, while none were increased for the third quarter. Moreover, for fiscal 2012, all the revisions (20 estimates) have been made in the downward direction.

Following its disappointing second quarter results, Lowe’s trimmed its financial outlook, as it remains concerned about the housing market and the sluggish economic recovery. The downward pressure on earnings estimates was in response to the guidance cut. Moreover, Lowe’s is struggling against The Home Depot Inc. ( HD - Analyst Report ) , which posted better-than-expected second-quarter 2012 results.

Magnitude of Estimate Revisions

Given the large number of estimate revisions in the downward direction, the Zacks Consensus Estimate for fiscal 2012 and 2013 plunged by 14 cents and 17 cents to $1.65 and $2.02, respectively in the last 7 days.

Quarterly trends were no different for the company, as the Zacks Consensus Estimate declined by 4 cents to 35 cents for the third-quarter and by 5 cents to 20 cents for the fourth-quarter of 2012.

Our View

Going forward, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer-spending rebounds.

Currently, we have a long-term ‘Neutral’ rating on the stock. However, Lowe’s holds a Zacks #4 Rank, which translates into a short-term Sell rating.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/