Lowe’s Stock To Trade Higher Post Q4?

LOW: Lowe's logo

Lowe’s (NYSE: LOW) is scheduled to report its fiscal fourth-quarter results on Wednesday, February 23. We expect the company’s stock to trade higher post-fourth-quarter results – as its revenues and earnings are likely to beat consensus estimates. The home improvement retailer has invested quickly and heavily to build out its digital capabilities to accommodate its demand surge during the pandemic. In fact, the home improvement retailer is able to maintain its sales momentum as consumers continue to take on more projects. Factors such as an increase in remote working, online school classes, and colder weather should bode well for the company’s continued sales momentum into the fourth quarter as well. Our forecast indicates that Lowe’s valuation is $256 per share, which is almost 15% higher than the current market price. Look at our interactive dashboard analysis on Lowe‘s Earnings Preview: What To Expect in Q4? for more details.

(1) Revenues expected to marginally beat the consensus estimates

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Trefis estimates Lowe’s Q4 2021 revenues to be around $21.4 Bil, slightly above the consensus estimate. The company’s revenues grew 3% year-over-year (y-o-y) to $22.9 billion, on the back of a 2.2% increase in comparable sales – considering the tough comparison of 30% the company was up against last year. It should be noted that comparable sales were still 34% higher than the mark from 2019 and ahead of the consensus estimate of -2.5% in Q3. Comparable sales were also up 2.6% for the U.S. business during the quarter. Inflation and big-ticket sales of appliances and flooring led to a 9.7% increase in the average ticket, but that gain was also offset by a 7.5% decline in transactions due to lower sales of small-ticket items and lumber to DIY customers. For the full year 2021, we expect Lowe’s Revenues to grow 7% y-o-y to $96 billion.

2) EPS likely to come ahead of consensus estimates

Lowe’s Q4 2021 earnings per share (EPS) is expected to be $1.81 per Trefis analysis, comfortable beating the consensus estimate of $1.71. The retailer’s gross margin came in at 33.1% of sales vs. 32.7% a year ago and its operating margin expanded 240 basis points y-o-y to 12.2% in Q3. The company also raised its operating margin outlook for the rest of the year from 12.2% to 12.4%. In fact, the company’s operating income grew a 28% y-o-y during this period. The retailer’s management also aggressively repurchased shares, which led to an 8.2% y-o-y reduction in its weighted-average share count. That said, Lowe’s higher revenue base, improved margins, and lower share count helped the company generate $1.9 billion of net income in Q3, compared to only $692 million in the prior-year period – growing its earnings to $2.73 a share from 91 cents per share a year earlier. The pandemic changed the way the customers shopped with Lowe’s, which became evident with a sales growth of 25% y-o-y in Q3. This came on top of the 106% sales growth for Lowes.com in the same quarter last year.

(3) Stock price estimate higher than the current market price

Going by our Lowe’s Valuation, with an EPS estimate of around $12.00 and P/E multiple of 21.3x in fiscal 2021, this translates into a price of $256, which is 15% higher than the current market price.

It is helpful to see how its peers stack up. LOW Peers shows how Lowe’s compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Feb 2022
MTD [1]
YTD [1]
Total [2]
 LOW Return -6% -14% 213%
 S&P 500 Return -4% -9% 94%
 Trefis MS Portfolio Return -2% -11% 251%

[1] Month-to-date and year-to-date as of 2/22/2022
[2] Cumulative total returns since the end of 2016

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