Is Lowe’s 7.7% One-Year Share Price Decline a Buying Opportunity?

Ned Piplovic

Lowe's

Despite the share price decline of nearly 8%, Lowe’s Companies, Inc. (NYSE:LOW) still looks like a good choice for investors that seek long-term asset appreciation, as well as total returns when combining capital gains and dividend income.

The share price initially pulled back more than 22% from $104.95 at the onset of the trailing 12-month period and reached its 52-week low of $81.48 on April 28, 2018. This price decline is indicative of the company’s overall performance in the first half of 2018, when Lowe’s missed analysts’ earnings per share (EPS) consensus estimates in each of the first two quarterly reports — for Q4 2017 and Q1 2018.

However, the company reversed its results and came back during the second half of the year with EPS figures that beat the $2.02 Wall Street analysts’ estimates by 2.5% in the second quarter and the $0.98 estimate for the third quarter by 6.1%. During its third-quarter results conference call, the company confirmed its earlier guidance of diluted earnings per share of $4.08 to $4.24 for the full fiscal 2018, which ends on February 1, 2019.

These projected EPS figures include a 2.5% expected increase in same-store revenue, a 4% increase in total sales and an expected decrease in operating income of 240 to 255 basis points as a percentage of sales. Lowe’s attributes 50% to 60% of this decrease to charges associated with its strategic reassessment.

2019 Guidance

For the upcoming fiscal year, which will end on January 31, 2020, Lowe’s forecasts its total sales to grow at 2% with same-store sales advancing 3%. Furthermore, the company expects its operating income (OI) as a percentage of sales to rise 235 to 250 basis points. Positive impact of initiatives the company undertook in 2018 are expected to generate approximately 60% of that increase. These initiatives include the closing of all Orchard Supply Hardware stores and 51 underperforming stores in the United States and Canada, as well as close all its stores and exit the market in Mexico.

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The company expects all these changes to generate $6.00 to $6.10 EPS in fiscal 2019, as well as continue its current share price uptrend that began after the April low. After bottoming out in April the share price advanced more than 43% before peaking at $116.84 on September 21, 2018. The September peak price represented an 11.3% advancement over the beginning of the trailing 12-month period.

Share Price

However, under the pressure of the overall market correction and late-year volatility, the share price retreated and closed at $96.91 on January 14, 2019. While 17% lower than the September peak and 7.7% below the price from one year earlier, this closing price was still nearly 19% above the 52-week low in April 2018 and nearly double the share price from five years earlier.

The company’s annual dividend income distributions – which have been rising consecutively for nearly six decades — offset some of the one-year share price decline to bring the total loss for the year below 6%. A price advancement of just 6.5%, over the $103 per share mark, would bring the year’s total return to the break-even point. Any additional advancement would reward shareholders with a positive total return for the trailing 12-month period and potentially set the stock on its way toward total returns similar to its recent levels of 40% over the past three years and nearly 110% over the last five years.

A share price upward move of 6.5% or more over the next 12 months is not outside the realm of probability if the company manages to follow through on its modest projections for the upcoming fiscal year. Furthermore, Lowe’s current share price of $96.91 is 15.4% below the analysts’ average price target of $111.86 and has plenty of room on the upside.

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Lowe’s Companies, Inc. (NYSE:LOW)

Headquartered in Mooresville, North Carolina, and founded in 1946, Lowe’s Companies, Inc. operates as a home improvement company in the United States, Canada and Mexico. The company provides home improvement products in various categories, such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, seasonal living, lawn and garden, paint, flooring, kitchens, outdoor power equipment and home fashions. Additionally, Lowe’s offers installation services through independent contractors in various product categories and extended protection plans, as well as warranty and non-warranty repair services. As of 2018, the company operated 2,390 home improvement and hardware stores. In addition to its stores, the company also sells its products through the Lowes.com and Lowesforpros.com websites and through mobile applications.


Ned-Piplovic

 

 

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.


 

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