High DIY Activity Can Lift Lowe’s Stock
Lowe’s (NYSE:LOW) market share in plumbing, electrical and kitchen home improvement products in North America is booming, despite a weak economy, led by strong activity from Do-It-Yourself (DIY) customers. Lowe’s ranks #2 in the home improvement industry after Home Depot (NYSE:HD) but has been rapidly growing its customer base and number of stores.
We expect Lowe’s market share in the North American plumbing, electrical and kitchen segment to increase slightly in the years ahead, closing in on 19% by the end of our forecast period as strength in customer service and attractive price offers allow the company to capitalize on the rising demand in DIY activity. The Trefis community is more optimistic on this front, predicting that this share will approach 22%. The community estimates imply an upside of 5% to our price estimate for LOW stock.
We currently have a Trefis price estimate of $25.87 for Lowe’s’s stock, about 6% above market price.
Strong DIY Activity Will Lift Lowe’s Market Share
Consumers often prefer to take on their own home repair & maintenance projects rather than hiring a professional, particularly during recessionary phases. During the summer of 2008, Lowe’s promoted the concept of “staycations” in its marketing campaign and featured this idea for its products like hammocks, fire pits, trellises and lounge chairs. “Staycation” refers to staying home for vacation rather than traveling. The purpose of the campaign was to promote investing in outdoor space of one’s home as an area for family fun and entertainment.
Lowe’s has had success in this campaign and has also grown its market share. Given its superior in-store shopping experience coupled with efficient customer service, Lowe’s is a preferred destination for Do-It-Yourself (DIY) customers. To further lift sales, Lowe’s announced plans to hire an in-home sales staff to offer customers advice on improvement projects within their own homes.
High Addition Rate of New Stores
Lowe’s expects to open around 17 stores during Q4 2010, bringing its total new store openings for 2010 to 42 stores. Comparatively, Home Depot is targeting a total of 6 new store openings for the year. As Lowe’s gradually narrows the store count gap with Home Depot and capitalizes on growing do-it-yourself activity, its market share should improve.
Trefis Community Forecast
The Trefis community predicts that Lowe’s plumbing, electrical & kitchen improvement products market share in North America will increase from below 18% in 2010 to nearly 22% by the end of our forecast period, compared to the baseline Trefis estimate of an increase towards 19% during the same period. The community estimates imply an upside of 5% to our $25.87 price estimate for Lowe’s stock.
Drag the trend line in the chart above to see the impact of various market share scenarios on Lowe’s stock value.
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