Lowe’s (NYSE: LOW), a home-improvement retailer, fell 4.6% on Tuesday, 19th November (to $259), as compared to a 0.4% growth in the S&P 500 index. In comparison, LOW’s peer Home Depot stock (NYSE: HD) saw its stock down 0.9% to around $407 on the same day. Lowe’s reported quarterly sales of $20.2 billion and earnings of $2.89 per share, exceeding estimates, but declined from prior-year levels of $20.5 billion and $3.06 per share. Rising interest rates and economic unpredictability have led to consumer caution, resulting in a 1.1% decline in comparable sales for the third quarter. The persistent decline in demand for larger discretionary do-it-yourself (DIY) projects was somewhat alleviated by increased sales driven by storm-related activity and strong showings in the professional and online channels. It should be noted that the company’s operating margin fell 60 basis points y-o-y to 12.5%, due to increased supply chain investments to facilitate its online orders.
The Federal Reserve continued to raise interest rates aggressively since 2022 to fight inflation (until September 2024 when it announced its first rate cut). Consequently, this has translated to higher mortgage rates, which in turn suppressed home sales. After hitting a 2022 high mortgage rate of 7.08% in November, rates started trending down. Currently, the 30-year fixed-rate mortgage averaged 6.78% as of 14th November. The dropping home prices could be a drag for Lowe’s on a short-term basis. Also, it is fair to assume homeowners will continue spending to maintain their properties.
The lowering of interest rates could provide some relief to weary home buyers tired of higher mortgage rates. Furthermore, lower rates will encourage homebuilders to build more as they will reduce borrowing costs and make it easier for consumers to utilize home equity lines of credit. That said, Lowe’s customer mix has disproportionately impacted Lowe’s results since last year, 2023. The DIY customer has been less eager to spend on remodels and upgrades. The company may suffer adverse sales effects if consumer spending patterns do not change, particularly in the DIY sector. We should keep a close watch on this metric.
The increase in LOW stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 63% in 2021, -21% in 2022, and 14% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.
Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could LOW face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
Looking ahead to the full year 2024, the home improvement retailer anticipates total sales to fall between $83 billion and $83.5 billion, with comparable sales expected to decline between -3.0% and -3.5%, from previous forecasts of between -3.5% and -4.0%. Operating profit margins are expected to range between 12.3% and 12.4%. It also expects adjusted diluted earnings per share of approximately $11.80 to $11.90 (previously $11.70 to $11.90).
We have revised Lowe’s Valuation to $260 per share, based on an $11.89 expected EPS and a 21.9x P/E multiple for the fiscal year 2024 – almost in line with the current market price. We forecast Lowe’s Revenue to be $83.2 billion for the fiscal year 2024, down 4% y-o-y.
Check out how other Lowe’s Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| LOW Return | -1% | 18% | 321% |
| S&P 500 Return | 3% | 24% | 163% |
| Trefis Reinforced Value Portfolio | 4% | 20% | 789% |
[1] Returns as of 11/20/2024
[2] Cumulative total returns since the end of 2016
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