This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Lowe's Is Improving on Its Success

To the extent management can post higher margins to demonstrate the sort of operational leverage the Street craves, the stock should respond well. By "operational leverage" I'm referring to, say, a double-digit basis point a jump in gross margin. Only then will investors buy into management's initiatives to improve operational efficiency. Investors want to see the dividends -- but Lowe's has already proven this.

Don't forget, Lowe's is coming off a solid November quarter that produced more than 7% revenue growth. This beat the consensus estimate handily. Even more impressive was that same-store sales advanced 6.2% year over year. With the company generating (on average) over $7 million in revenue per store, management made every bit of that traffic count.

What this means is management knows how to squeeze out strong profitability from each store location. So although it's still premature to say Lowe's has leapfrogged Home Depot in terms of size and operational efficiency, the Street should credit management for its work to close the gap. But don't assume the company is content with second place.

All told, I don't see any noticeable weaknesses in the company's current status. There is always room for better merchandising situation and improved cost structure. But there isn't a retailer that is ever satisfied with these areas. In that regard, given Lowe's strong comps of late, Michael Jones, the company's new chief merchandising officer has pushed the right buttons.

Again, this is not to say Lowe's should suddenly take its foot off the gas pedal. We should agree, however, that this race with Home Depot is much closer than previously thought.

At this point, Lowe's is the better investment. With the Orchard deal in hand, management seems more willing to take the sort of risks necessary to return long-term value to shareholders. This supports a valuation of $55 to $60 in the next six to 12 months.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LOW $77.34 0.00%
AAPL $117.81 0.00%
FB $105.45 0.00%
GOOG $750.26 0.00%
TSLA $231.61 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs