Analyst Note| Jaime M. Katz, CFA |
We plan to raise our $145 per share fair value estimate for Lowe’s by a high-single-digit rate, due to fourth-quarter outperformance and sales momentum that has persisted into fiscal 2021. Even with this increase, shares should remain modestly overvalued. The first quarter could see double-digit comp store sales again, before lapping the onset of pandemic-related demand, when we expect performance to normalize. This would carry on fourth-quarter strength, which delivered 28.1% comp sales (ahead of our 19% estimate) and $20.3 billion in total revenue (a 27% increase). Fourth-quarter results offered consistent performance across the business, with growth above 16% in all merchandising departments, higher than 19% in all U.S. regions and more than 120% in the e-commerce channel. Such robust demand supported operating margin leverage, with Lowe’s delivering a 40-basis-point improvement in the fourth quarter, to 7.6%.