Lowe’s Earnings: Fair Quarter, but Meaningful Improvement Contingent on DIY Turnaround

Key Morningstar Metrics for Lowe’s Companies

• Fair Value Estimate: $225.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Companies'

Lowe’s Companies' LOW fourth quarter echoed the sentiments of competitor Home Depot HD, conveying concern about higher interest rates and the willingness to spend on DIY projects. That said, the top-line print of $18.6 billion was ahead of our $18.2 billion estimate, and comparable sales grew 0.2%, marking the first positive result in eight quarters. The gross margin rose 46 basis points to 32.9% (versus our 32.7% forecast) and the adjusted operating margin lifted 36 basis points to 9.4% (9.3%) thanks to productivity improvements. Notably, while comparable transactions declined 1.3% in the quarter due to fewer DIY projects, the comparable average ticket grew 1.5%, which we see as a positive sign that consumers are trading up in areas like appliances and spending on small pro projects. As such, we plan to maintain our $225 fair value estimate and see shares as modestly overvalued.

Lowe’s held the 2025 outlook it offered at its December 2024 investor day. This considers depressed housing turnover and continued macro uncertainty. Ultimately, this positions Lowe’s for around $84 billion in sales (roughly flat), with a steady operating margin of 12.3%-12.4%. Like Home Depot, in the near term, we expect faster sales growth from pros. Lowe’s uniquely targets small to mid-sized pros, enhanced by its new, pro-specific loyalty program that has a lower spending level to qualify for rewards, which should keep this cohort involved (pros posted high-single-digit comps in the fourth quarter).

Further, we see an uplift from Lowe’s efforts in improved technology and its newly launched consumer rewards program to meaningfully engage DIY customers. In the longer term, we still expect Lowe’s can achieve 3.5% annual sales growth and operating margins of around 14% (160 basis points above its historical five-year average), bolstered by perpetual productivity initiatives.