Lowe’s (NYSE: LOW), a home-improvement retailer, is scheduled to report its fiscal second-quarter results on Tuesday, August 22. We expect the company’s stock to trade lower post-second-quarter results – as its revenue is likely to miss and earnings almost match the consensus estimates. Its customer mix disproportionately impacted Lowe’s results in Q1. The do-it-yourself customer was less eager to spend on remodels and upgrades compared to last year, in part thanks to short-term issues like weather and inflation. The home improvement retailer also lowered its outlook for 2023. For the full year, the company tempered total sales forecasts to a range of $87 billion to $89 billion from a prior $88 billion to $90 billion. Comparable sales are expected to be down 2% to 4%, also revised downward from a previous guide of flat to down 2%.
Our forecast indicates that Lowe’s valuation is $203 per share, which is nearly 8% lower than the current market price. Look at our interactive dashboard analysis on Lowe‘s Earnings Preview: What To Expect in Q2? for more details.
Notably, LOW stock had a Sharpe Ratio of 0.6 since early 2017, which is similar to the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
(1) Revenues expected to be slightly below consensus estimates
Trefis estimates Lowe’s Q2 2023 revenues to be around $24.7 Bil, slightly below the consensus estimate. In Q1, the company’s revenue fell 6% year-over-year (y-o-y) to $22.3 billion. In a challenging macroeconomic environment, Lowe’s comparable sales decreased 4.3%, steeper than the 3.28% drop expected on the Street. The company blamed lumber deflation, unfavorable weather, and lower DIY discretionary sales for the decline. We now forecast Lowe’s Revenue to be about $89 billion for fiscal 2023.
2) EPS likely to match consensus estimates
LOW’s Q2 2023 earnings per share (EPS) is expected to be $4.45 per Trefis analysis, almost matching the consensus estimate of $4.49. Its Q1 adjusted earnings grew 5% y-o-y to $3.67.
(3) Stock price estimate lower than the current market price
Going by our Lowe’s Valuation, with an EPS estimate of around $13.65 and a P/E multiple of 14.9x in fiscal 2023, this translates into a price of $203, almost 8% lower than the current market price.
|S&P 500 Return||-5%||14%||95%|
|Trefis Reinforced Value Portfolio||-7%||28%||553%|
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