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Stock Analysis & Ideas

Lowe’s Stock: Does the Pullback Offer an Investment Opportunity?

Shares of home improvement retailer Lowe’s (NYSE: LOW) are down nearly 21% so far this year. Investors are concerned about the impact of inflation on consumer spending, rising interest and mortgage rates, and the fading of pandemic tailwinds.

But do Wall Street analysts expect Lowe’s stock to rebound?

Financial Snapshot

Lowe’s sales increased 7.4% to $96.3 billion in FY21 (ended January 28, 2022), on top of the impressive 24% growth seen in FY20, which benefited from higher spending on homes amid lockdowns and restrictions on mobility.

Following the better-than-anticipated Q4 FY21 results, Lowe’s raised its FY22 guidance earlier this year. The company expects sales between $97-$99 billion, up from its previous guidance range of $94-$97 billion. Comparable sales growth is expected to be in the range of -1% to 1%. Further, Lowe’s forecast EPS of $13.10-$13.60 in FY22, up from its previous outlook of $12.25-$13.00.

Despite headwinds like higher interest rates, Lowe’s outlook for the home improvement industry remains strong. According to Lowe’s, about half the homes in the U.S. are more than 40 years old and will continue to require repairs and maintenance. These activities generate about two-thirds of the company’s annual sales.

Growth Strategies

Lowe’s continues to enhance its omnichannel capabilities by expanding its online offerings, improving the user experience, and strengthening its fulfillment capabilities.

As part of its Total Home strategy, Lowe’s has also been focusing on boosting its sales from Pro (professional) customers. Lowe’s Pro customer penetration is lower than that of rival Home Depot (HD). Pro customers are generally more profitable than DIY (do-it-yourself) customers, as they spend more per transaction and shop more often.

Lowe’s efforts to capture additional business from Pro customers include the rolling out of services such as Lowe’s Tool Rental program, the introduction of a new loyalty program for Pro customers, enhancing product offerings, and redesigning store layouts to ensure speed and convenience.

Word on the Street

Reacting to Lowe’s recent announcement about the exit of its CFO, David Denton, Wells Fargo analyst Zachary Fadem stated that his optimism about the company is unchanged despite the C-suite turnover. Denton will be assuming the role of Pfizer CFO effective May 2, 2022. Brandon Sink, the company’s Senior Vice President, Retail Finance, will succeed Denton as the new CFO, effective April 30, 2022.

Fadem believes that Lowe’s FY22 guidance seems conservative and that long-term growth levers are intact. The analyst concluded, “At 15x NTM P/E (-16% vs. 3-yr avg.), we see compelling value for a leading retailer with attractive category dynamics, idiosyncratic growth and structural margin improvement.”

Fadem reiterated a Buy rating on Lowe’s, with a price target of $260.

Overall, Lowe’s scores a Strong Buy consensus rating based on nine Buys and three Holds. At $259.18, the average Lowe’s price target implies 26.34% upside potential from current levels.

The Final Word

Despite near-term headwinds, most of the analysts covering Lowe’s continue to be optimistic about the company’s growth potential in the years ahead.

Further, Lowe’s scores a 9 out of 10 from TipRanks’ Smart Score System, suggesting that it is likely to outperform market averages.

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