"After a slow start to the year, Lowe's has driven solid sales growth of 4.6% to date in 2014 while improving profitability by 70bps, as its recent initiatives have lined up with strong underlying market trends and begun to pay off," analysts said about the North Carolina-based home improvement retailer.
"We see potential upside in Lowe's opportunity to narrow the gap to its largest competitor across several metrics (sales per square foot, average annual Pro spend, and operating margin). However, we highlight the risk associated with maintaining accelerated comps of 4% in light of a competitive market," analyst noted.
"Our 2015 EPS estimate of $3.25, based on 3.5% comp growth, reflects this risk," analysts continued.
"Given the strong 47% return in the stock YTD and its premium valuation to the S&P 500 (27% vs. its five-year average of 13%), LOW's approximately 2x current multiple reflects the risk/reward tradeoff, in our view," analysts added.
Separately, TheStreet Ratings team rates LOWE'S COMPANIES INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate LOWE'S COMPANIES INC (LOW) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, revenue growth and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Powered by its strong earnings growth of 25.53% and other important driving factors, this stock has surged by 38.99% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- LOWE'S COMPANIES INC has improved earnings per share by 25.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LOWE'S COMPANIES INC increased its bottom line by earning $2.13 versus $1.68 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $2.13).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 17.5% when compared to the same quarter one year prior, going from $498.00 million to $585.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 5.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 51.29% to $761.00 million when compared to the same quarter last year. In addition, LOWE'S COMPANIES INC has also vastly surpassed the industry average cash flow growth rate of -22.10%.
- You can view the full analysis from the report here: LOW Ratings Report