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After Earnings, Is Lowe’s Stock a Buy, Sell, or Fairly Valued?

With macro pressures but easier comparisons ahead, here’s what we think of Lowe’s stock.

An exterior view of a Lowe's home improvement store.
Securities In This Article
The Home Depot Inc
Lowe's Companies Inc

Lowe’s LOW released its fiscal first-quarter earnings report on May 21., 2024. Here’s Morningstar’s take on Lowe’s earnings and outlook for the stock.

Key Morningstar Metrics for Lowes

What We Thought of Lowe’s Q1 Earnings

  • Lowe’s first-quarter earnings results aligned closely with our estimates. It reported $21.4 billion in sales and $3.06 in diluted earnings per share, versus our estimates of $21.1 billion and $3.08, respectively.
  • Comparable sales dropped 4.1%, and a 7.6% decline in purchases over $500 signaled macro pressures are yet to abate. Still, we think Lowe’s is benefiting from the fact that it serves professionals who engage in relatively modest jobs (evidenced by the positive pro comparable that management qualitatively stated) relative to big projects that consumers tend to delay during times of economic uncertainties. Similar to our view on wide-moat Home Depot HD, we think better comparable sales should ensue with easier year-over-year comparisons throughout the rest of the year.
  • We raised our fair value estimate by $3 to $214 per share on time value. Shares now look fairly valued; they are trading in the 3-star territory after peaking at $261 in mid-March.

Lowe's Companies Stock Price

Fair Value Estimate for Lowe’s Stock

With its 3-star rating, we believe Lowe’s stock is fairly valued compared with our long-term fair value estimate.

We are raising our fair value estimate to $214 from $211 per share as we incorporate fiscal 2024 first-quarter results ($21.4 billion in sales and $3.06 in diluted EPS) that came in line with our expectations and time value. For fiscal 2024, we forecast $84 billion in sales and $12.23 in EPS.

Lowe’s first-quarter net sales of $21.4 billion were negatively affected by a comparable sales decline of 4.1% owing to weak do-it-yourself demand as customers engaged in smaller and less-discretionary projects. As demand continues to normalize, we expect throughput for home improvement products should depend mostly on changes in the real estate market, which are driven primarily by prices, interest rates, and turnover, given the maturity of the industry. We expect sales to expand at a low-single-digit pace over the long term (averaging 3% in fiscal 2025-33, after our forecast for a 2% decline in 2024), supported by consistent single-digit same-store sales (3% on average between 2025 and 2033) and moderate location growth (netting five boxes per year), as household formations rise.

Read more about Lowe’s fair value estimate.

Lowe's Companies Stock vs. Morningstar Fair Value Estimate

Economic Moat Rating

We assign Lowe’s a wide economic moat. As the second-largest global home improvement retailer, we believe Lowe’s will continue to gain incremental share in the North American home improvement retail segment (which Lowe’s has estimated at around a $1 trillion market), given its extensive distribution network and economies of scale as well as the brand awareness it has built with consumers and professionals.

Dissecting the components of its competitive prowess, Lowe’s has been able to capture economic rents from its brand, offering an important intangible asset. This is evidenced in consistent same-store sales growth, which has averaged 6.3% over the past five years. Furthermore, continued improvements in merchandising strategy, the supply chain, and a focus on meeting pro consumer demands should support the brand, driving both additional same-store sales growth (3% on average beyond fiscal 2024) and operating margin expansion over the next decade (to 14.5%, near that of wide-moat Home Depot and up roughly 500 basis points relative to the average margin chalked up in the five years preceding the pandemic).

Read more about Lowe’s moat rating.

Financial Strength

Despite increasing leverage in recent years (Lowe’s raised nearly $3 billion while paying down $0.6 billion in 2023), the debt/total capital ratio remained around 20%, and we believe the company is in decent financial health thanks to the robust free cash flow it generates. Specifically, Lowe’s generated an average annual free cash flow of $8.6 billion over the past five years. We believe this level of robust free cash flow helps support the company’s $35 billion long-term debt load along with $3.8 billion in noncurrent operating lease liabilities as of May 2024.

Read more about Lowe’s financial strength.

Risk and Uncertainty

We assign Lowe’s a Medium Uncertainty Rating because of its strong brand recognition, which has helped stabilize sales through the cycle, despite operating in a cyclical retail environment.

Generally, housing turnover and homeowner spending are key factors driving home improvement demand. Existing home sales growth had stabilized at the beginning of 2020 until covid struck, sending existing home sales tumbling at a double-digit pace between April and June 2020, before achieving a consistent recovery. However, existing home sales have contracted meaningfully in recent months, and any additional economic headwinds, like a spike in unemployment, predatory pricing tactics, or a slowdown in consumer confidence, could reduce revenue and profitability.

Read more about Lowe’s risk and uncertainty.

LOW Bulls Say

  • The divestiture of the dilutive Canadian business structurally lifted Lowe’s profitability profile. With continued focus on extracting inefficiencies, Lowe’s is set to reach midteens operating margin longer term.
  • Higher home prices and aging housing stock support demand, generating an estimated cumulative free cash flow of $46 billion over the next five years.
  • Perpetual productivity initiatives, which could improve the supply chain and inventory management could boost inventory turnover and working capital generation above levels that we currently anticipate.

LOW Bears Say

  • The closure of smaller peers may intermittently lead to competitive pricing pressures at Lowe’s, constraining expansion of return on invested capital and limiting sales growth.
  • Higher interest rates, flat housing price growth, or tighter lending standards could slow inventory turnover, postponing home improvement projects and hindering Lowe’s sales.
  • Lower sales could pressure profitability if lower-margin acquired businesses—like those that compose the Lowe’s Pro Supply line—operate less than optimally. Further margin pressure could ensue if growing pro and maintenance, repair, and operations demand become difficult.

This article was compiled by Sokhoeun Noeut.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Grace Na

Associate Equity Analyst
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Grace Na is an associate equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She conducts a variety of research and related analysis on companies that fall into the consumer defensive and consumer cyclical sectors.

Before joining Morningstar in 2021, Na spent several months interning at a deal advisory group at KPMG Korea and a Chicago-based private equity firm, where she conducted various qualitative research on both public and private markets.

Na holds a bachelor's degree in finance, investment, and banking from the University of Wisconsin–Madison's Wisconsin School of Business.

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