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Can Lowe's (LOW) Break Through to New Levels with Q3 Report?

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Lowe’s (LOW - Free Report) reports its third quarter financial results before the opening bell Wednesday, November 20. The home improvement company has seen its shares rise over 24% and is currently trading around 2.6% below its 52-week high of $118.23.

Lowe’s has stoked investors with its solid sales growth trend, rising customer traffic, and improving profitability. The company was even able to outpace its top rival, Home Depot (HD - Free Report) , in top-line growth last quarter. Let’s take a closer look at the momentum Lowe’s brings into its Q3 report and what to expect.

Closing the Gap

Lowe’s has long been tasked with catching up to Home Depot, and the new management team feels that its restructuring plan can put it in a position to finally do just that. The company’s restructuring plan started to bear fruit in the second quarter where Lowe’s saw its sales and earnings rise in the face of difficult macroeconomic conditions that deflated lumber prices.

Lowe’s revamped its website and integrated its site onto the Google (GOOGL - Free Report) cloud, which should help consumers navigate from the search through checkout process. Lowe’s also cemented its commitment to its digital expansion by building a new global technology center.

The home improvement center is also looking to build a strong relationship with contractors that can bring business to the company for years to come. Lowe’s has decided to switch its focus from homeowners to contractors, who can provide steady store traffic and drive the average ticket higher. Pro customers outpaced DIYers in account additions as it opened 35,000 new pro accounts in the quarter, which gives Lowes a solid base to build off.

Outlook

Lowe’s is set to report its Q3 results one trading day after Home Depot. Investors will compare the two reports to see just how successful Lowes’ restructuring has been. CEO Marvin Ellison stated in Q2 that all the key ingredients are there for continued strong industry growth through the 2019 fiscal year. Factors like low unemployment, rising wages, and the low interest rate environment could benefit home improvement companies like Lowe’s and Home Depot.

Despite favorable conditions in the US, Canada continues to be a headwind for the retailer. Lowe’s acquired Canadian home improvement rival RONA over three years ago and it is still having difficulty integrating the business into its operations. The Canadian struggles have forced Lowe’s to alter its strategy, but it remains optimistic that RONA can turn things around.

Our Q3 consensus estimates call for earnings to soar 28.85% to $1.34 per share and for net sales to hit $17.71 billion for a 1.71% rally. Same-store sales in the third quarter are projected to come in at 3.39%. Our full fiscal year figures anticipate a bottom-line gain of 10.31% to $5.67 per share on the back of a 1.71% jump in net sales to $72.53 billion.

Takeaway

Lowe’s has integrated a strong restructuring plan that has generated promising results. The retailer has done a solid job expanding its digital presence, which has helped rejuvenate the company. Its efforts to garner a larger contractor crowd has also contributed to the business’ top and bottom line growth and should provide an extended growth runway.

However, Lowe’s might want to consider spending more on capital improvements to further enhance its internal systems and its supply chain, as Home Depot ramps up its own investing. Lowe’s is currently listed as a Zacks Rank #3 (Hold).

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