Lowe’s Companies, Inc. (LOW) Faceplants Into a Sell Rating

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low - Lowe’s Companies, Inc. (LOW) Faceplants Into a Sell Rating

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Lowe’s Companies, Inc. (NYSE:LOW) shocked Wall Street with an embarrassingly bad quarter even in a robust housing market, and that makes LOW stock a total write-off.

Low Stock: A Faceplant of a Quarter Makes Lowe’s Companies, Inc.a Sell

Lowe’s earnings and revenue missed analysts’ estimates. If that weren’t enough, the retailer slashed its full-year outlook. Perhaps this could be forgiven if the economy was in a soft patch, but when it comes to the housing market, the opposite is true — things could scarcely be better.

Just ask Home Depot Inc. (NYSE:HD). The No. 1 home improvement retailer posted solid profit and sales results yesterday and lifted its full-year outlook.

As well as it should have. It’s imperative for management to make hay while the sun is shining, and the weather couldn’t be much better for LOW stock’s retail category.

Company’s like Lowe’s and HD are benefiting from a convergence of positive developments for the housing market. Interest rates remain low, as do gas prices. Unemployment is down, while wages and hiring are up. This is giving consumers confidence to form new households or undertake long-neglected home improvement projects.

That’s why we figured — along with every other analyst and investor — that Lowe’s earnings were poised to set off a new period of outperformance for LOW stock.

How wrong we were.

Time to Part Ways With LOW Stock

There’s no doubt that Home Depot is a formidable competitor, but the home improvement market is big enough for two national chains. The subsector also benefits from being a port in a storm of online competition and subdued consumer spending.

Indeed, almost every retailer has to worry about Amazon.com, Inc. (NASDAQ:AMZN). Home improvement stores don’t.

At the same time, they’re generating much better sales growth than the broader retail sector. For the year-to-date through July, retail sales increased 2.8%, according to the Commerce Department. The category that encompasses Lowe’s and HD grew 6.4%.

LOW stock has no excuse not to thrive under these conditions. And yet it still managed to come up lame. For the second quarter, Lowe’s adjusted earnings came to $1.37 a share — well below the Street forecast for $1.42, according to a survey by Thomson Reuters. Revenue rose 5.3% to $18.3 billion, just short of analysts’ forecast for $18.4 billion.

It gets worse. Same-store sales — a critical retail metric — were only up 2% when they were expected to rise 4.1%.

Of course the real killer for LOW stock was the cut to guidance. The company now expects full-year earnings at $4.06 a share, down from a prior outlook of $4.11 a share.

Anytime a stock takes the kind of beating Lowe’s is taking right now, it’s worth tracking. That’s how you find overly beaten-down bargains. But in the case of LOW stock? Pass.

Management has zero credibility after a quarter like the one LOW just coughed up. If Lowe’s can’t thrive under current conditions, what’s it good for?

As of this writing, Dan Burrows did not hold a position under the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/low-stock-lowes-faceplant/.

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