Lowe’s (NYSE: LOW) shares have risen by 5% over the past week, surpassing the S&P 500 index’s decline of 0.8%. The stock performance of the home‐improvement retailer also outpaced that of its peer, Home Depot stock (NYSE: HD), which recorded a 4% gain during the same period. See Is Home Depot Stock A Buy After Q4 Earnings? Lowe’s recent momentum is a result of its Q4 earnings report, in which the company exceeded Wall Street expectations with sales of $18.6 billion and earnings of $1.99 per share. Notably, the retailer also registered a 0.2% rise in comparable sales, ending an eight‐quarter period of declines and outperforming analyst predictions of a 1.8% drop.
Since 2023, the customer mix at Lowe’s has disproportionately affected its results. DIY customers have shown less enthusiasm for spending on remodels and upgrades. Although there was a persistent decline in demand for larger discretionary DIY projects in Q4, this was partially offset by increased sales from rebuilding efforts after hurricanes Milton and Helene, along with robust performance in the professional and online channels. It is important to note that DIY customers account for approximately 70% of Lowe’s sales. Additionally, if you seek upside with less volatility than a single stock, consider the High Quality portfolio, which has outperformed the S&P and delivered over 91% returns since inception.
Lowe’s has managed a challenging environment in recent years, as the housing market slowed because of increasing interest rates. Since 2022, the Federal Reserve’s aggressive rate hikes (until September 2024, when it announced three consecutive rate cuts) intended to combat inflation have led to higher mortgage rates that have dampened home sales. Although mortgage rates have started to decline, reaching 6.76% as of February 27, they continue to be a major market factor. The gap between current borrowing costs and the lower rates enjoyed by existing homeowners has created a “lock-in effect,” causing homeowners to hesitate when selling and buying new properties. This diminished market activity has affected Lowe’s; however, homeowners will probably continue investing in property maintenance, which may offer some stability for Lowe’s.
The growth in LOW stock over the past four years has been inconsistent, with annual returns significantly more volatile than those of the S&P 500. Returns for the stock were 63% in 2021, -21% in 2022, 14% in 2023, and 13% in 2024. The Trefis High Quality Portfolio, which consists of 30 stocks, exhibits considerably less volatility. Moreover, it has comfortably outperformed the S&P 500 over the past four years. Why is that? Collectively, HQ Portfolio stocks delivered superior returns with lower risk compared to the benchmark index, resulting in a less volatile performance, as shown in HQ Portfolio performance metrics.
Lowe’s has released its financial guidance for fiscal year 2025, with total sales projected to range between $83.5 billion and $84.5 billion. This projection indicates a potential rise from the fiscal 2024 revenue of $83.67 billion. The company expects modest growth in comparable sales, projecting a year-over-year increase of 0% to 1%. Furthermore, Lowe’s forecasts its operating margin to be between 12.3% and 12.4% in fiscal 2025, which is a slight decline from the 12.5% margin recorded in fiscal 2024. Earnings per share are projected to be between $12.15 and $12.40, slightly lower than the fiscal 2024 EPS of $12.23.
We have updated Lowe’s Valuation to $253 per share, based on an expected EPS of $12.39 and a 20.4x P/E ratio for fiscal year 2025, which is nearly consistent (as of March 2) with the current market price. We project Lowe’s Revenue to reach $84.7 billion in fiscal year 2025, representing a slight year-over-year increase.
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