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Lowe's Companies Inc LOW

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Pandemic Demand Remains Robust for Wide-Moat Lowe’s; Shares Modestly Overvalued

Jaime M. Katz, CFA Senior Equity Analyst

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%.

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Company Profile

Business Description

Lowe's is the second- largest home improvement retailer in the world, operating about 1,970 stores throughout the United States and Canada. The firm's stores offer products and services for home decorating, maintenance, repair, and remodeling. Lowe's targets retail do-it-yourself and do-it-for-me customers as well as commercial business clients. We estimate that Lowe's captures a low-double-digit share of the domestic home improvement market, based on U.S. Census estimates for market size.

1000 Lowe's Boulevard
Mooresville, NC, 28117
T +1 704 758-1000
Sector Consumer Cyclical
Industry Home Improvement Retail
Most Recent Earnings Oct 31, 2020
Fiscal Year End Jan 31, 2021
Stock Type Cyclical
Employees 320,000