Shares of Lowe’s (NYSE:LOW) gapped down to a four-month low after the home improvement retailer released its first-quarter operating results. Let’s see what the fuss is all about and whether this company is a bargain or if it is too much of a fixer-upper.
With over 161,000 employees across 1,750 locations, Lowe’s is the second-largest home improvement retailer in the world. Additionally, this company is the world’s second-largest hardware chain. The company brought in over $50 billion in sales in 2011 and is headed towards 2% sales growth for 2012.
Before the opening bell today, Lowe’s reported better-than-expected top- and bottom-line growth for the first quarter thanks to warm weather. Compared with Q1 2011, net earnings climbed 14% to $527 million, or 43 cents per share. Analysts forecast earnings of 42 cents per share, so the company posted a 2% earnings surprise.
Over the same period, sales climbed 8% to $13.2 billion; this also topped the $12.99 billion consensus estimate. However, shares of LOW consolidated by 8% after the company announced a conservative earnings guidance for the rest of 2012.
There are currently 11 companies in the Home Improvement Stores industry; of those, Lowe’s is the third largest in terms of market capitalization. This company also stands out in terms of its 2% dividend yield, which is the second best in the industry, and its Price/Earnings to Growth ratio, which is third highest. This is a middle-of-the-road company in terms of long-term growth rate (fourth) and return on equity (fifth). And, Lowe’s sales growth and earnings growth rank towards the bottom of the pack, which are ranked eighth and ninth respectively.
Lowe’s main competitor is Home Depot (NYSE:HD), which it tops in terms of gross margin and sales growth, but falls short in terms of operating margin. Lowe’s also competes with Sears (NASDAQ:SHLD) and privately owned Menard Inc.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past year, this stock has improved considerably; last May, LOW was a D-rated sell. This stock’s main area of strength is its high buying pressure. On the fundamentals side, Lowe’s does well in terms of earnings growth, its history of beating earnings estimates as well as analyst earnings revisions. However, the company could stand to firm up its sales growth, operating margin growth, cash flow and return on equity.
This stock is currently a B-rated buy, but there is still plenty of room for improvement, so I would check in on this stock’s Portfolio Grader page from time to time.
Recommendation: B-rated Buy
Sound Off: What do you think about LOW? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.