Lowe's Looks Undervalued

We have previously looked at Home Depot (HD), the home improvement retailer. Today we look at Lowe’s (LOW), a competitor in the home improvement retailing space. So how does the current share price of $LOW look from an intrinsic value perspective?

Valuecruncher valuation model of $LOW with interactive assumptions: Valuecruncher produces a valuation of US$16.41 for $LOW. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 13.6% below the current share price of US$19.05.

Assumptions

• Revenue: Reuters aggregates 20 analysts covering $LOW and these analysts have mean estimates of 2009 and 2010 revenues of US$48.6 billion and US$50.7 billion respectively. For our analysis we have used US$48.5 billion in 2009, US$48.85 billion in 2010 and US$53.5 billion in 2011.
• Profitability: We have used an EBITDA margin of 11.0% in 2009 and 2010 rising to 12.0% in 2011. Reuters has $LOW‘s EBITD margin at 12.1% last year and averaging 12.8% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$3.5 billion in 2009 then US$3.0 billion per annum moving forward.
• Discount Rate: 9.0%.
• Terminal Growth Rate: 2.5%.

Our analysis incorporates the cash and debt on the $LOW balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: none

Comments

[BSCLossMan:]

Many stocks are undervalued. Next week, they'll be more undervalued.

2008 Nov 12 08:31 AM

[BlueOkie:]

Picking numbers two or three years out makes most evaluations useless. This is a meaningless exercise.

2008 Nov 12 04:53 PM

[Rsquaredz:]

Since Lowes relies directly on home improvement spending and home construction and both of these activities are much reduced these days, it would not make sense to predict that Lowes is going to be a great stock pick for the foreseeable future - my 2 cents worth.

2008 Nov 12 06:50 PM

[DecadeTrader:]

"Valuecruncher produces a valuation of US$16.41....... This valuation is 13.6% below the current share price of US$19.05."

Then it must be overvalued

2008 Nov 14 01:22 PM