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Lowe's Stays Neutral

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We have maintained our long-term Neutral recommendation on Lowe’s Companies Inc. (LOW - Free Report) , with a target price of $40.00, following the company’s fourth-quarter 2012 results.

Why the Reiteration?

Being the world’s second largest home improvement retailer, Lowe’s boasts a proven strategy of investing in stores to enhance customer-shopping experience by improving point-of-sale and directional signage, and enhancing its array of products. The company’s sustained focus on Everyday Low Prices, New Lower Price, Go Local and Specialty Sales initiatives, have helped it boost its market share.

The company posted fourth-quarter fiscal 2012 earnings of 26 cents per share that handily surpassed the Zacks Consensus Estimate of 23 cents. However, earnings remained flat year over year.

Total revenue of this Zacks Rank #3 (Hold) stock declined 5% year over year to $11,046 million but came ahead of the Zacks Consensus Estimate of $10,826 million.

Going forward, the company now expects earnings to be $2.05 per share in fiscal 2013, while total sales are projected to rise by 4% with comparable-store sales increasing by 3.5%. The current Zacks Consensus Estimate for fiscal 2013 is $2.09.

Moreover, the company’s efficient merchandising strategy and increased demand on account of remodeling activities following Hurricane Sandy will facilitate it to improve operating margins by 60 basis points in fiscal 2013.

However, we prefer to remain on the sidelines as we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds. 

Other Stocks to Consider

However, until any further upward revision in the Zacks Rank on Lowe’s, other stocks worth considering in the housing and allied sectors include Lumber Liquidators Holdings, Inc. (LL - Free Report) and Travis Perkins plc (TVPKF - Free Report) , both of which hold a Zacks Rank #1 (Strong Buy) and are expected to continue with the upbeat performance. KB Home (KBH - Free Report) carrying a Zacks Rank #2 (Buy) is also worth considering.

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