[updated: 09/10/2021] Lowe’s Stock Update
Lowe’s (NYSE: LOW) recently reported a better-than-expected Q2 report, wherein both revenues and GAAP earnings per share (EPS) were above our estimates. The company reported revenues of $27.6 billion, 3% above the consensus estimate of $26.7 billion and 2% above the Trefis estimate. Also, its EPS came in at $4.25, rising 7% above the consensus and 5% above our estimate. Lowe’s revenues grew slightly year-over-year (y-o-y), on the back of topping comparable sales expectation in Q2 (-1.6% vs. -1.9% consensus) – considering the tough comparison the company was up against last year. However, the comp sales grew 32% for the total company and its sales increased 21% on a two-year basis. It should be noted that a robust 21% y-o-y growth in Lowe’s professionals, a 10% rise in installation services, and a 7% jump in e-commerce sales also contributed to the Q2 2021 gains. The home improvement retailer also delivered a healthy earnings beat in Q2, up 14% year-over-year (y-o-y), as it saw a significant operating margin expansion.
Lowe’s lifted its full-year revenue outlook to $92 billion from a previous $86 billion forecast. This 2021 revenue guidance represents a 28% increase from the pre-pandemic revenue in 2019. The company is also expecting its full-year operating margin to improve to 12.2%, up from 10.8% in 2020. We have updated our model following the fiscal Q2 release. We now forecast sales to come at $93 billion for fiscal 2021, up 4% y-o-y, compared to a marginal decline in our previous estimate. Looking at the bottom line, we now forecast EPS to come in at $11.34, compared to our earlier estimate of $10.05. Given the changes to our revenues and earnings forecast, we have revised our Lowe’s Valuation at $210 per share, based on 11.34 expected EPS and an 18.6x P/E multiple for fiscal 2021 – 2% higher than the current market price.
[updated: 08/17/2021] Lowe’s Q2 Pre Earnings
Lowe’s (NYSE: LOW) is scheduled to report its fiscal second-quarter results on Wednesday, August 18. We expect the company’s stock to trade higher post-second-quarter results – as its revenues and earnings are likely to beat consensus estimates marginally. The home improvement retailer has invested quickly and heavily to build out its digital capabilities to accommodate its demand surge during the pandemic. The consumers are still investing in their homes and Lowe’s saw sales pick up among home professionals in Q1, as well. In fact, stimulus checks supported bigger-ticket projects and the company saw early demand for popular spring purchases, such as patio items and grills. While the company did not provide any specific guidance, we expect the retailer to continue to benefit from strong demand for home improvement products and home building supplies in the second quarter, as well. Our forecast indicates that Lowe’s valuation is $201 per share, which is almost 4% higher than the current market price of $193. Look at our interactive dashboard analysis on Lowe‘s Pre-Earnings: What To Expect in Q2? for more details.
(1) Revenues expected to marginally beat the consensus estimates
Trefis estimates Lowe’s Q2 2021 revenues to be around $27 Bil, slightly higher than the consensus estimate of $26.7 Bil. Lowe’s saw record sales growth in 2020 as it added over $17 billion year-over-year to its sales base and booked soaring profits through the year. In fact, the company reported a strong comparable sales growth of 26.1% in fiscal 2020, which surpassed Home Depot’s comp sales of 19.7% in fiscal 2020. To add to this, the company’s Q1 sales rose 24% y-o-y to $24.4 billion and same-store sales surged 30%, as the coronavirus pandemic pushed more people to its stores and website to invest in their homes. The company reported that lumber was its strongest category, driven by strong demand from both professionals and do-it-yourself customers. We expect this trend to continue into Q2 as well. That said, the increase in remote working may be longer-lasting, which will allow the company to serve those customers looking to build and maintain a home office beyond the pandemic.
2) EPS likely to come ahead of consensus estimates
Lowe’s Q2 2021 earnings per share (EPS) is expected to be $4.04 per Trefis analysis, marginally higher than the consensus estimate of $3.99. As a result of revenues growing substantially, the company’s operating margin of 13.3% in Q1 2021 came 320 basis points higher than Q1 2020 – despite higher safety, labor, and supply chain costs related to Covid-19. In fact, the company’s operating income grew a strong 63% y-o-y during this period. In addition, Lowe’s generated $2.3 billion of net income in Q1, compared to $1.3 billion in the prior-year period, growing its earnings to $3.21 a share from $1.76 per share a year earlier. The pandemic changed the way the customers shopped with Lowe’s, which became evident with a sales growth of 36.5% y-o-y and two-year growth of 146% on Lowes.com.
For the full year 2021, we expect Lowe’s net margin to grow 180 basis points from 6.5% in 2020 to 8.3% in 2021. This coupled with a marginal decline y-o-y (due to weak comparison compared to the second half of 2020 as more consumer dollars could be spent on travel) in Lowe’s revenues, would lead to a rise of $1.6 billion y-o-y in net income to $7.4 billion in 2021. All this, resulting in a potential EPS increase from $7.77 in 2020 to around $10.05 in 2021.
(3) Stock price estimate higher than the current market price
Going by our Lowe’s Valuation, with an EPS estimate of around $10.05 and P/E multiple of 20x in fiscal 2021, this translates into a price of 201, which is 4% higher the current market price.
For further comparison among peer groups, it is helpful to see how they stack up. LOW Stock Comparison With Peers shows how Lowe’s compares against peers on metrics that matter.