Lowe's Companies (LOW) is trading near the bottom of the S&P 500 Tuesday despite the world's second-largest home improvement retailer beating top- and bottom-line expectations for its third quarter and raising its full-year outlook.
In the three months ended November 1, Lowe's revenue decreased 1.5% year over year to $20.2 billion as its comparable-store sales dipped 1.1% on "continued softness in do-it-yourself (DIY) bigger-ticket discretionary demand." Its earnings per share (EPS) declined 5.6% from the year-ago period to $2.89.
"Our results this quarter were modestly better than expected, even excluding storm-related activity, driven by high-single-digit positive comps in Pro, strong online sales and smaller-ticket outdoor DIY projects," said Lowe's CEO Marvin Ellison in a statement.
The results topped analysts' expectations. Wall Street was anticipating revenue of $19.95 billion and earnings of $2.82 per share, according to CNBC.
Thanks to its better-than-expected third-quarter results, Lowe's raised its full-year outlook. The company now expects to achieve revenue in the range of $83 billion to $83.5 billion and earnings per share between $11.80 to $11.90. This is an improvement over its previous forecast of revenue in the range of $82.7 billion to $83.2 billion and earnings per share of $11.70 to $11.90.
"Next month at our Analyst and Investor Conference, I look forward to discussing our new growth and productivity initiatives, which underscore our confidence that we are well-positioned to capitalize on the expected recovery in home improvement," Ellison said.
Why is Lowe's stock lower?
David Wagner, portfolio manager at Aptus Capital Advisors, says many folks assumed Lowe's sales would be higher this quarter and that wasn't the case.
"The biggest thing that I was looking for during the quarter was a read-through into following years, which this quarter did not give much indication of what type of EPS earnings power the company could have in 2025 and 2026, and that is what matters for the stock," Wagner wrote in emailed commentary.
Additionally, investors are considering Lowe's results in comparison to Home Depot's (HD) third-quarter report, which was released one week ago. "LOW should have skewed to more favorable conditions than HD," he adds.
Is LOW a buy, sell or hold?
Lowe's, which happens to be one of Wall Street's best dividend stocks for dependable growth, has slightly lagged the broader market in 2024. Indeed, the blue chip stock is up 24.5% on a total return basis (price change plus dividends) for the year to date vs the S&P 500's 25.1% gain. And Wall Street is bullish on LOW.
According to S&P Global Market Intelligence, the average analyst target price for the consumer discretionary stock is $276.18, representing implied upside of nearly 6% to current levels. Meanwhile, the consensus recommendation is a Buy.
Financial services firm Argus Research is one of those with a Buy rating on LOW stock, along with a $275 price target.
"We believe that CEO Marvin Ellison is demonstrating the experience and ability to improve operations and raise profitability at Lowe's," said Argus Research analyst Christopher Graja in an August 21 note. "The company has upgraded its business analytics, upgraded its website, and sold the Canadian business, which should lead to better margin performance and higher capital efficiency. LOW also seems to be gaining traction with professional customers."
