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Bull of the Day: Lowe's Companies (LOW)

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As the Covid-19 pandemic stretches past its 200th day and Americans remain mostly in their homes as much as possible, there have been many winners and losers in the business world. The losers have been businesses that rely in in-person interactions for a significant portion of their revenues. Travel, leisure and entertainment have all suffered mightily.

Technology and technology services like video conferencing and file sharing companies that allow people to work at home more efficiently have been the obvious winners.

There have also been winners in lower-tech industries that suddenly find their goods and services in increased demand – and customers who’s lack of recent spending on recreational pursuits has left them with additional cash in their budgets.

Have you been to a home improvement store lately? With the exception of physical formats that have been tweaked to promote social distancing, you’ll probably find that it looks pretty much like business as usual.

For a huge retailer like Lowe’s Companies (LOW - Free Report) , a quick look at recent financials confirms that not only is it “business as usual,” in may respects, it’s better than usual. Suddenly consumers who have been confined to their homes have been embarking on a wide variety of home improvement projects.

The more time you spend in your home, the more likely you are to take on those nagging minor repairs that have been on your “to-do” list forever, as well as tackling bigger projects like painting and landscaping. Contractors have their schedules filled months into the future – and they shop at home improvement stores too - for plumbing, electrical, carpentry and concrete supplies.

With limited options for dining out, grills and other outdoor cooking equipment have been flying out of stores, along with larger appliances like refrigerators, stoves, washers and dryers. Though unemployment remains stubbornly above recent averages, most Americans do remain employed. With almost no money spent on things like airline tickets and restaurant meals, many are finding that they have extra cash to spend on improving their environments.

Low interest rates have kept the housing markets extraordinarily healthy, and increased spending on home improvement projects tends to accompany residential real estate transactions.

A quick look at recent financials and estimates confirms just how much consumer cash is flowing to Lowe’s. We’re seeing double digit sales growth:

And even more significant earnings growth:

(Selling, General and Administrative Expense are fairy constant, so earnings ramp up faster than sales.)

The Share Price

One possible knock on Lowe’s right now is that the shares have already seen remarkable appreciation this year. During the market panic in March, those shares traded as low as $60 – an incredible bargain!

Even at recent levels near $170/share however, Lowe’s remains quite reasonably valued at 20X forward 12-month earnings estimates. For comparison purposes, competitor Home Depot (HD - Free Report) trades at 25X forward earnings.

13 recent upward earnings estimate revision earn Lowe’s a Zacks Rank #1 (Strong Buy), and a 1.3% annual dividend yield sweetens the deal even more.

It may not be as sexy as some of the recent high-tech superstars, but it’s hard to go wrong with a retailer that’s successfully turning changes in customer demand into increasingly solid earnings.

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