Lowe's shares fell 4.6% -- the most since November 2013 -- after earnings for the quarter ended May 1 of 70 cents a share trailed the 74 cent-a-share average estimate of analysts surveyed by Thomson Reuters. The home-improvement and building materials retailer's net income still rose 8.5% to $673 million, and its earnings have missed estimates four times in the past nine quarters.
"We don't see companies like Lowe's trade at a discount frequently," said Morningstar analyst Jamie Katz. "So the [pullback] could be an interesting opportunity to find an entry point."
TheStreet's Jim Cramer, whose charitable trust Action Alerts PLUS sold its position in Lowe's back on May 7 said on Wednesday: "Don't give up on these guys. They got beaten by Home Depot (HD) on plumbing and tools; but they are doing fine. I would be a buyer tomorrow."
Meanwhile, the landscape for the home improvement space remains rosy. "For repair and remodel, we're looking at mid single-digit growth over the next five years," Katz added. "That means Lowe's and Home Depot should see at least some benefit."
S&P Capital IQ analyst Efraim Levy echoes that sentiment. "We see rising housing activity, more jobs and higher stock markets supporting remodeling sales," he wrote in a Wednesday note. |
S&P lowered its price target on the stock Wednesday to $73 from $75 and maintains a "hold" rating.
Katz also points to millennials, who are slowly entering the housing market. Even if millennials choose to rent instead of buying a home, both retailers should see benefit from "the willingness to spend on improvement as you move into your own place," she said.
At $69.08 a share, Lowe's is trading at about 25 times its pre-share earnings last year, a premium to Home Depot's multiple of 23.
Shares of Lowe's have gained 0.3% since the start of the year, while Home Depot has risen 6.7%.