Lowe’s (LOW) stock has gained 24% over the last year, but has suffered a bit of a rocky ride of late. Shares of LOW stock are currently recovering from the downward trend that began with January’s market correction. LOW is still not back to the stock’s 52-week high around $107 — which also happens to be the average price target for analysts watching the stock.
So is LOW stock a buy at current levels? Let’s take a look.
The Past Year for LOW Stock
Last month, Lowe’s announced a new head honcho: former J.C. Penney (JCP) CEO Marvin Ellison, who also worked at Home Depot (HD) for over a decade. Lowe’s current CEO, Robert Niblock announced back in March that he was going to retire this summer. His replacement came after hedge fund D.E. Shaw Group pressured the company to put three new directors on the Lowe’s board.
Also last month, Wells Fargo initiated coverage on LOW stock with an “outperform” rating and activist investor Bill Ackman disclosed a $1 billion bet on Lowe’s not long after the CEO announcement and the company’s most recent earnings report.
During the first quarter, Lowe’s earnings and sales fell short of Wall Street’s expectations. Lowe’s has in fact missed earnings in three of the last four quarters. The company blamed unfavorable weather but posted an upbeat outlook.
Looking Forward
Many pundits point to Lowe’s as a company with a good deal of value to unlock, and expect new leadership to steer Home Depot’s smaller cousin in that direction. For the cherry on top, Lowe’s has paid and raised its dividend for years. The payout currently sports a 1.9% forward dividend yield — though its payout ratio is a little higher than I prefer at 36%.
Right now, the company is slated to grow earnings by 18% per year for the next five — pretty much in line with its growth during the last half-decade and in line with its forward P/E at the moment — but that growth isn’t expected to be organic. In 2018, a 15% year-over-year sales declines is on tap, followed by another 3% dip next year.
My concern with Lowe’s is that, despite the struggles in 2018, the company’s growth and potential for unlocked value has already been baked into its overall uptrend. Revisions for earnings estimates are a mixed bag, sales growth is in the red, and earnings growth has consistently been less than the company promised.
The Bottom Line for LOW Stock
Lowe’s, like rival Home Depot, is also a company that tends to move very much in line with overall economic growth. While economic fundamentals are more or less strong, there is plenty of uncertainty in the wake of a looming trade war with China and general political uncertainty.
If those macro figures push Lowe’s stock lower, I’d consider trying to snag some shares in the hopes that Ellison can unlock some additional value. But with shares already back to the $100 mark and a lot of resistance up ahead, I wouldn’t buy in right now otherwise.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
