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Lowe's (LOW) Up 2.4% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Lowe's Companies, Inc. (LOW - Free Report) . Shares have added about 2.34% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lowe’s Q4 Earnings & Revenues Top Estimates
After two straight quarters of earnings miss, Lowe’s posted positive earnings surprise of 8.9% in the fourth quarter of fiscal 2016. Net sales also outperformed 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.
The home improvement retailer posted adjusted earnings of $0.86 per share that surpassed the Zacks Consensus Estimate of $0.79, and surged 45.8% from $0.59 delivered in the year-ago quarter.
Net sales of $15,784 million came ahead of the Zacks Consensus Estimate of $15,280 million, and increased 19.2% year over year. The company’s sales increased can be attributed to its efforts to provide a better omni-channel customer experience and an improvement in the housing market. RONA sales were approximately $825 million.
Comparable sales (comps) climbed 5.1% basis during the quarter, while comps for the U.S. business also increased by an equivalent rate. The increase in comps was driven by 4% jump in average ticket and 1.1% rise in transactions. The company posted 25% comps growth on Lowes.com. The company continued with its sturdy performance in the international markets with double-digit comps in Mexico and mid-single-digit comps in Canada in local currency.
Gross profit soared 18.4% year over year to $5,432 million, however, gross profit margin contracted roughly 25 basis points to 34.4%.
Other Financial Aspects
Lowe’s ended the quarter with cash and cash equivalents of $558 million, long-term debt (excluding current maturities) of $14,394 million and shareholders’ equity of $6,434 million. During the quarter, the company kept its promise of returning surplus cash to its stockholders as it repurchased shares worth $551 million and distributed $306 million as dividends. In Jan 2017, the company’s Board of Directors authorized a new $5 billion share buyback program. The company has approximately $5.1 billion remaining under its total share repurchase authorization.
During fiscal 2016, the company generated operating cash flow of $5.6 billion and incurred capital expenditures of $1.2 billion, thereby resulting in free cash flow of over $4.4 billion. Management now projects cash flow from operations to be about $5.9 billion and capital expenditures of approximately $1.4 billion, thereby resulting in an estimated free cash flow of approximately $4.5 billion in fiscal 2017. The company also expects to repurchase shares worth approximately $3.5 billion in the fiscal year.
Outlook
Management now projects total sales growth of approximately 5% and expects comps to increase about 3.5% during fiscal 2017. Analysts believe that increase in home prices should encourage homeowners to take up more discretionary projects, apart from ongoing maintenance and repair spending. Moreover, improving job picture and income growth should act as catalysts.
The company now anticipates fiscal 2017 earnings to be approximately $4.64 per share, up significantly from $3.99 posted in fiscal 2016. Lowe’s envisions operating margin to increase approximately 120 basis points in the fiscal year.
Moreover, the company intends to open 35 home improvement and hardware stores during fiscal 2017. As of Feb 3, 2017, the company operated 2,129 stores in the U.S., Canada and Mexico.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three upward revisions for the current quarter compared to one downward.
At this time, the Lowe's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Lowe's (LOW) Up 2.4% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Lowe's Companies, Inc. (LOW - Free Report) . Shares have added about 2.34% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lowe’s Q4 Earnings & Revenues Top Estimates
After two straight quarters of earnings miss, Lowe’s posted positive earnings surprise of 8.9% in the fourth quarter of fiscal 2016. Net sales also outperformed 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.
The home improvement retailer posted adjusted earnings of $0.86 per share that surpassed the Zacks Consensus Estimate of $0.79, and surged 45.8% from $0.59 delivered in the year-ago quarter.
Net sales of $15,784 million came ahead of the Zacks Consensus Estimate of $15,280 million, and increased 19.2% year over year. The company’s sales increased can be attributed to its efforts to provide a better omni-channel customer experience and an improvement in the housing market. RONA sales were approximately $825 million.
Comparable sales (comps) climbed 5.1% basis during the quarter, while comps for the U.S. business also increased by an equivalent rate. The increase in comps was driven by 4% jump in average ticket and 1.1% rise in transactions. The company posted 25% comps growth on Lowes.com. The company continued with its sturdy performance in the international markets with double-digit comps in Mexico and mid-single-digit comps in Canada in local currency.
Gross profit soared 18.4% year over year to $5,432 million, however, gross profit margin contracted roughly 25 basis points to 34.4%.
Other Financial Aspects
Lowe’s ended the quarter with cash and cash equivalents of $558 million, long-term debt (excluding current maturities) of $14,394 million and shareholders’ equity of $6,434 million. During the quarter, the company kept its promise of returning surplus cash to its stockholders as it repurchased shares worth $551 million and distributed $306 million as dividends. In Jan 2017, the company’s Board of Directors authorized a new $5 billion share buyback program. The company has approximately $5.1 billion remaining under its total share repurchase authorization.
During fiscal 2016, the company generated operating cash flow of $5.6 billion and incurred capital expenditures of $1.2 billion, thereby resulting in free cash flow of over $4.4 billion. Management now projects cash flow from operations to be about $5.9 billion and capital expenditures of approximately $1.4 billion, thereby resulting in an estimated free cash flow of approximately $4.5 billion in fiscal 2017. The company also expects to repurchase shares worth approximately $3.5 billion in the fiscal year.
Outlook
Management now projects total sales growth of approximately 5% and expects comps to increase about 3.5% during fiscal 2017. Analysts believe that increase in home prices should encourage homeowners to take up more discretionary projects, apart from ongoing maintenance and repair spending. Moreover, improving job picture and income growth should act as catalysts.
The company now anticipates fiscal 2017 earnings to be approximately $4.64 per share, up significantly from $3.99 posted in fiscal 2016. Lowe’s envisions operating margin to increase approximately 120 basis points in the fiscal year.
Moreover, the company intends to open 35 home improvement and hardware stores during fiscal 2017. As of Feb 3, 2017, the company operated 2,129 stores in the U.S., Canada and Mexico.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three upward revisions for the current quarter compared to one downward.
Lowe's Companies, Inc. Price and Consensus
Lowe's Companies, Inc. Price and Consensus | Lowe's Companies, Inc. Quote
VGM Scores
At this time, the Lowe's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been broadly trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.