May 19, 2022

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Anything but ordinary

Why Is Lowe’s (LOW) Up 2.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Lowe’s (LOW). Shares have added about 2.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lowe’s due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lowe’s Q4 Earnings & Sales Beat Estimates

Lowe’s delivered splendid fourth-quarter fiscal 2021 results, as both the top and the bottom lines grew year over year and surpassed the Zacks Consensus Estimate. LOW delivered the 11th straight earnings beat and the eighth consecutive sales surprise.

Quarter in Detail

Earnings per share (EPS) of $1.78 surpassed the Zacks Consensus Estimate of $1.72 and rose 34% from adjusted EPS of $1.33 recorded in the fourth quarter of fiscal 2020. Sales growth and margin expansion seemed to have supported the bottom line.

Net sales of $21,339 million moved up 5.1% year over year and surpassed the Zacks Consensus Estimate of $20,818 million. Comparable sales increased 5% in the quarter under review. Comparable sales for the U.S. home-improvement business increased 5.1% in the reported quarter. Pro customer sales jumped 23%. Comparable sales rose 6.9% in 2021.

Gross profit increased 8.8% year over year to $7,027 million, while gross margin expanded 115 bps to 33.1%. Operating income amounted to $1,849 million, up 21.3% year over year. Operating margin expanded 117 bps to 8.67%.

Other Financial Aspects & Developments

LOW ended the quarter with cash and cash equivalents of $1,133 million, long-term debt (excluding current maturities) of $23,859 million and shareholders’ deficit of $4,816 million.

Lowe’s generated cash flow from operations of $10,113 million for the 12 months ended Jan 28, 2022. Capital expenditures amounted to $1,853 million. For fiscal 2022, LOW expects capital expenditures of nearly $2 billion.

Outlook

LOW now expects revenues of $97-99 billion (including the 53rd week), up from the prior prediction of $94-97 billion (issued in December 2021). The 53rd week is likely to boost sales by $1-$1.5 billion. In 2021, Lowe’s revenues amounted to $96.3 billion. The Zacks Consensus Estimate for fiscal 2022 revenues is currently pegged at $96.4 billion.

Comparable sales in 2022 are envisioned in the range of a decline of 1% to a rise of 1%. The metric was earlier predicted in the range of a 3% decline to flat compared with the last fiscal year’s reported number.

Lowe’s now expects the gross margin rate to improve slightly year over year. In its December 2021 release, management projected the gross margin to be flat year over year. The operating margin is expected to be 12.8-13%, up from the prior view of 12.5-12.8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Lowe’s has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lowe’s has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.