Up 8% This Year, What Lies Ahead For Lowe’s Stock Post Q2 Results?

Lowe’s (NYSE: LOW), a home-improvement retailer, is scheduled to report its fiscal second-quarter results on Tuesday, August 20. We expect the company’s stock to likely see little to no movement with revenue and earnings matching market expectations in the fiscal second quarter. Its customer mix disproportionately impacted Lowe’s results in 2023. The do-it-yourself (DIY) customer was less eager to spend on remodels and upgrades than in FY’22, partly thanks to short-term issues like the stagnant housing market and inflation. A similar situation was seen in the last quarter (Q1) results as well. Looking ahead, Lowe’s remains optimistic yet wary of ongoing economic pressures. For the full year, Lowe’s total sales are projected to be between $84 billion and $85 billion, with comparable sales expected to decrease by 2% to 3% compared to the prior year. The operating margin is anticipated to be between 12.6% and 12.7%. In addition, the company’s diluted earnings per share is expected to fall in the range of $12.00 to $12.30 in FY 2024. The company plans to continue its focus on pro customer sales, omnichannel expansion, and supply chain efficiencies. The company may suffer adverse sales effects if consumer spending patterns change, particularly in the DIY sector. We should keep a watch on this metric in the upcoming results. Lowe’s stock has been up 8% since the beginning of this year near $241. In comparison, LOW’s peer Home Depot (NYSE: HD) stock was up 6% this year to $362.

LOW stock has seen extremely strong gains of 50% from levels of $160 in early January 2021 to around $241 now, vs. a similar change 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 12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 HD, 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 $240 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 Q2? for more details.

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

Trefis estimates Lowe’s Q2 2024 revenues to be around $24 Bil, in line with the consensus estimate. In Q1, the company’s revenue fell 4% year-over-year (y-o-y) to $21.4 billion. For the first quarter, the retailer’s comparable sales decreased 4.1%, due to decreased big-ticket discretionary spending among DIY customers. It should be noted that the company saw its comp sales fall 6.2% in Q4 2023. The company’s gross margin came in at 33.2% (down 49 basis points) in Q1 and the operating margin fell to 12.4% in Q1 2024 compared to 14.7% a year earlier. We now forecast Lowe’s Revenue to be about $85 billion for fiscal 2024, down 2% y-o-y.

2) EPS likely to match consensus estimates

LOW’s Q2 2024 earnings per share (EPS) is expected to be $3.97 per Trefis analysis, matching the consensus estimate. In Q1, Lowe’s diluted earnings per share came in at $3.06, a drop from $3.77 a year ago. The sale of its Canadian business in the prior year influenced the diluted EPS comparison. The company also saw higher selling, general, and administrative (SG&A) expenses and higher depreciation and amortization costs in Q1.

Despite these issues, Lowe’s repurchased about 3 million shares for $743 million. The company also maintained its quarterly dividend at $1.10 per share, up from $1.05 a year ago, reflecting a 4.8% increase.

(3) Stock price estimate aligns with the current market price

Going by our Lowe’s Valuation, with an EPS estimate of around $12.21 and a P/E multiple of 19.6x in fiscal 2024, this translates into a price of $240, 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.

[1] Returns as of 8/18/2024
[2] Cumulative total returns since the end of 2016