Lowe’s Earnings: Results Weighed Down by Weak DIY Spending but Bolstered by Pro Momentum

Lowe’s echoed the sentiment of competitor wide-moat Home Depot, as its third-quarter results could not escape the negative impact of macroeconomic uncertainty and relatively high interest rates on DIY customer spending. Total sales of $20.2 billion were slightly higher than our $19.8 billion forecast, attributable to hurricane-related activity and pro comps that were better than implied. Though the top line came in ahead, the adjusted operating margin fell to 12.3% (90 basis points), hurt by product mix pressure and storm-related expenses. However, we see this as an isolated event and do not expect to modify our long-term assumption of 13.4% average operating margin over the next decade. As such, we do not plan to materially adjust our $220 fair value estimate and currently see shares as overvalued.