A strong housing market continues to be a major tailwind for Lowe’s Companies, Inc. (NYSE:LOW), which has pushed LOW stock up more than 12% in the last three months, outperforming Home Depot Inc (NYSE:HD), up about 9% during that span. Can the run in Lowe’s stock, which closed Friday at $83.53, continue?
Like its corporate slogan, “Never Stop Improving,” LOW stock continues to benefit from an improving U.S. jobs market and gradual recovery in the housing market.
At the same time, the Mooresville, NC-based retailer does not have the unfortunate task of competing with e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) — unlike, say, Macy’s Inc (NYSE:M) and Sears Holdings Corp (NASDAQ:SHLD), which are closing stores.
Why Lowe’s Stock Is a Winner
What’s more, LOW management has drastically improved the company’s merchandising initiatives, which now incorporate an enhanced omni-channel strategy that gives customers a better shopping experience. These moves helped the company to deliver strong fourth-quarter operating results earlier this month that beat on both the top and bottom lines.
For the quarter ended February, Lowe’s stock reported earnings of 86 cents per share, topping the Street forecast by 8 cents. Revenue rose 19% to $15.78 billion, also beating estimates, while same-store sales jumped 5.1%. Notably, Lowe’s enjoyed a 4% rise in average ticket and 1.1% jump in the number of transactions. Even more impressive was the fact that, among ticket items that were $500 and above, Lowe’s saw a 9% increase.
This strong rise in $500+ purchases suggests two things: One, consumers are comfortable spending on high-ticket items and are confident in their financial position. The second thing? Consumers are are aggressively investing back into their homes with renovations.
Both scenarios bode well for Lowe’s and LOW stock. Plus, it underscores that management were correct with recent bets on Orchard Supply Hardware Stores, ATG Stores and RONA — acquisitions the company has made over the last two years.
And with management now projecting fiscal 2017 revenue growth to be in the range of 5% to 6%, while comps are expected to rise about 3.5%, Lowe’s sees no signs of slowing down, especially with fiscal 2017 earnings projected to be $4.63 per share, up significantly from $3.99 posted in fiscal 2016.
Bottom Line for LOW Stock
Lowe’s stock has risen 15.6% year-to-date and about 7% over the past month. LOW stock is priced at just 18 times fiscal 2017 earnings-per-share estimates of $4.63, which calls for year-over-year growth of 16%. This compares to a P/E of 20 for Home Depot, which is projected to grow earnings at 11.5%. And with fiscal 2018 earnings-per-share growth projected to be 14%, Lowe’s stock, which pays a 1.68% annual yield, should reach $100 per share, delivering 20% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
