Lowe’s Companies, Inc. (LOW) Is Set for a Big Day

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 Lowe's Companies, Inc. (LOW) Is Set for a Big DayLowe’s Companies, Inc. (NYSE:LOW) is expected to report solid sales and profit growth Wednesday thanks to the same group of tailwinds responsible for rival Home Depot Inc.‘s (NYSE:HD) encouraging Q2 results.

The No. 2 home improvement chain is 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.

That is giving consumers confidence to form new households or undertake long-neglected home improvement projects.

None of this is new, mind you. Lowe’s stock is slightly outpacing the broader market this year thanks to rising demand for building materials, garden equipment and related items. In the first three months of the fiscal year, Lowe’s same-store sales — an important retail metric — topped forecasts with growth in excess of 7%.

But it is reassuring to know Lowe’s earnings can be counted on to deliver at least more of the same when it posts second-quarter results. A beat-and-raise quarter isn’t out of the question, either. Rival HD lifted its outlook as part of its own second-quarter report.

For the most recent quarter, analysts on average expect Lowe’s to deliver earnings of $1.42 per share, up from last year’s earnings per share of $1.20, according to a survey by Thomson Reuters. Revenue is forecast to rise more than 6% to $18.45 billion from $17.35 billion a year ago. That’s a top-line growth rate on par with what HD reported for the same period.

Lowe’s Stock Is a Rare Retail Pick

Like HD, Lowe’s has better growth prospects than the S&P 500, but it hasn’t really been a source of outperformance. That could change, as more investors come to realize that it’s one of the few names worth chasing in the retail sector.

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. Through the first seven months of the year, retail sales increased 2.8%, according to the Commerce Department. However, the category that encompasses Lowe’s and HD grew 6.4%.

Credit Suisse had this to say about LOW and HD ahead of earnings:

“[W]e expect Q2 results to outshine what seems to be a weakening broader retail landscape, and we believe results improved throughout the quarter as data today confirmed. Further, these stocks have underperformed the market by ~300 bps since reporting Q1. As such, if one wants retail exposure, HD/LOW should remain a good place to be.”

That doesn’t mean LOW stock is without its challenges. As always, margins remain in focus. The market will be keeping an eye out for pricing pressure and any execution that trails the competition.

Still, the bottom line is that Lowe’s stock looks like a market beater for the foreseeable future. For what it’s worth, the Street certainly thinks so. Of the 30 analysts covering the stock, 24 have it at buy and six call it a hold.

It’s hard to find retail stocks that are working these days, but an improving housing market makes Lowe’s one of them.

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

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

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