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Should You Buy Lowe's (LOW) Ahead of Earnings After HD's Strong Quarter?

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Shares of Lowe's (LOW - Free Report) have slipped over 3% in the last month in a sign that investors might be nervous about the home improvement company. Yet, after a strong report from rival Home Depot (HD - Free Report) , as well as impressive quarters from Walmart (WMT - Free Report) and other retailers, what should we really expect from Lowe’s when it reports its quarterly financial results Wednesday?

Overview

Home Depot posted quarterly earnings that beat the Zacks Consensus Estimate. Meanwhile, HD’s quarterly revenues climbed 8.4% to roughly $30.5 billion, which also topped our estimate. Plus, the company’s comparable sales were positive 8%.  

Walmart also impressed. The company’s adjusted quarterly earnings surge 19%. More importantly, Walmart’s U.S. comparable store sales jumped by 4.5%, while its e-commerce sales soared 40%. The retail giant’s strong quarter helped show that the industry can not only survive in the age of Amazon (AMZN - Free Report) but thrive.

Last quarter, Lowe's saw its revenues climb by 3% to hit $17.4 billion. However, same-store sales only climbed by 0.6%, which fell well below many of its peers, including Target’s (TGT - Free Report) 3% comps. For fiscal 2017, the home improvement store reported revenues of $68.6 billion, which was far less than Home Depot’s $100.9 billion.

Stock Price Movement

Shares of LOW have climbed over 13% during the last three months, which tops the S&P 500’s 5% gains. Jumping back a bit further, Lowe’s has seen its stock price climb roughly 33% in the last 12 months. This solid run includes some major turbulence and tops the S&P’s 18% jump, but does fall below its industry’s 39% climb. If we stretch out our view over the last three years, investors will note that LOW has lagged its industry by a significant amount.

 

Valuation

Moving on, LOW is currently trading at 16.9X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to HD’s 19.8X and its industry’s 27.4X. Over the last year, LOW has traded as high as 22.9X, with a one-year median of 16.5X. Lowe’s stock is currently trading above its year-long low of 14.5X and slightly above its median. But looking back over the last five years, we can see that LOW’s valuation hardly looks stretched.

 

Outlook

Lowe’s is expected to see its Q2 revenues pop by 6.73% to hit $20.81 billion, based on our current Zacks Consensus Estimate. Looking ahead to the full year, LOW’s revenues are projected to climb by just under 5% to reach $71.86 billion.

At the bottom end of the income statement, Lowe’s outlook looks much stronger. The company’s adjusted quarterly earnings are projected to surge 28.7% to touch $2.02 per share. The home improvement retailer’s adjusted fiscal 2018 earnings are expected to climb by nearly 24% to $5.44 per share.

Bottom Line

Lowe’s has seen its EPS projection climb by $0.04 over the duration of the quarter, but the company has fallen short of our quarterly earnings estimates in four out of the last six quarters. Lowe’s is currently a Zacks Rank #3 (Hold) and looks like it might be a stock to just keep an eye on for now.

The company is set to release its Q2 financial results before the opening bell on Wednesday, August 22.

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