How Will Lowe’s Stock Trend After Increasing Only 3% This Year?

-12.82%
Downside
233
Market
203
Trefis
LOW: Lowe's logo
LOW
Lowe's

Lowe’s (NYSE: LOW), a home-improvement retailer, is scheduled to report its fiscal third-quarter results on Tuesday, November 21. We expect the company’s stock to see little movement post-third-quarter results – as its revenue and earnings are expected to almost match the consensus estimates. Its customer mix disproportionately impacted Lowe’s results in the fiscal first half of 2023. 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. Looking ahead, the home improvement retailer expects total sales of approximately $87 billion to $89 billion for the full year 2023, comparable sales to be down -2% to -4%, and adjusted operating margin in the range of 13.4% to 13.6%.

LOW stock has shown strong gains of 30% from levels of $160 in early January 2021 to around $205 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. However, the increase in LOW stock has been far from consistent. Returns for the stock were 61% in 2021, -23% in 2022, and 3% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 (YTD) – indicating that LOW underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LOW face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Lowe’s valuation is $203 per share, which is nearly in line with the current market price. Look at our interactive dashboard analysis on Lowe‘s Earnings Preview: What To Expect in Q3? for more details.

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(1) Revenues expected to come in line with consensus estimates

Trefis estimates Lowe’s Q3 2023 revenues to be around $20.96 Bil, almost matching the consensus estimate. In Q2, the company’s revenue fell 9% year-over-year (y-o-y) to $24.96 billion. Lowe’s comparable sales fell 1.6% in Q2 2023, with strong spring recovery and Pro and online sales growth, partially offsetting lumber deflation and lower DIY discretionary demand. Still, it was better than the 4.3% decline the company saw in Q1 2023. We now forecast Lowe’s Revenue to be about $89 billion for fiscal 2023, down 9% y-o-y.

2) EPS likely to match consensus estimates

LOW’s Q3 2023 earnings per share (EPS) is expected to be $3.04 per Trefis analysis, almost matching the consensus estimate. Its Q2 adjusted earnings fell 2.4% y-o-y to $4.56. Despite a sizable reduction in share count from its share buyback program, Q2’s net margin was impacted by a slower decline in selling, general, and administrative expenses. Therefore, EPS declined during the quarter, albeit slower than net sales.

(3) Stock price estimate similar to 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 in line with the current market price.

Check out how other Lowe’s Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 LOW Return 7% 3% 188%
 S&P 500 Return 7% 17% 101%
 Trefis Reinforced Value Portfolio 7% 26% 549%

[1] Month-to-date and year-to-date as of 11/16/2023
[2] Cumulative total returns since the end of 2016

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