Lowe's Expected To Narrow The Gap With Home Depot

Feb.26.14 | About: Lowe's Companies, (LOW)

Lowe's Companies Inc. (NYSE:LOW) is set to report FQ4 2014 earnings after the market closes on Wednesday, February 26th. Lowe's is one of the largest home improvement and construction goods retailers in the United States. Lately retail sales have been down across the board with many companies blaming harsh weather and reduced customer traffic for the poor results. Rival The Home Depot (NYSE:HD) reported its FQ4 earnings on Tuesday, revealing slightly better than expected EPS but missing the revenue consensus from Wall Street.

In recent years Lowe's has been making gains on Home Depot which just reported a 3% year-over-year decline in FQ4 sales. Despite the falling sales from Home Depot, Wall Street is forecasting Lowe's to report 5.5% sales growth compared to FQ4 last year. Here's what investors are expecting from Lowe's on Wednesday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Lowe's)

The current Wall Street consensus expectation is for LOW to report 31c EPS and $11.658B revenue while the current Estimize.com consensus from 17 Buy Side and Independent contributing analysts is 33c EPS and 11.759B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Lowe's to beat the Wall Street consensus on both EPS and revenue.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non- professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential for Lowe's.image

The distribution of estimates published by analysts on the Estimize.com platform range from 76c to $1.22 EPS and $20.852B to $22.000B in revenues. This quarter we're seeing a large distribution of estimates for Lowe's.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post earnings.image

Over the past 4 months Wall Street reduced its EPS consensus from 32c to 31c, while the Estimize community returned to its original consensus of 33c. Over the same period of time the Wall Street revenue consensus increased from $11.576B to $11.658B while the Estimize consensus fell from $11.894B to $11.759B. Timeliness is correlated with accuracy and downward analyst revisions going into a report are often a bearish indicator.image

The analyst with the highest estimate confidence rating this quarter is triker who projects 33c EPS and $11.800B in revenue. In the Winter 2014 season triker is rated as the 65th best analyst and is ranked 129th overall among over 3,900 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, triker is expecting Lowe's to report in line with the Estimize consensus on EPS and exceed expectations on revenue.

This quarter, despite reduced retail sales across the board, poor weather, and weaker-than-expected revenue from Home Depot, contributing analysts on the Estimize.com platform are expecting Lowe's to beat their sales target and grow revenue by 5.5% year over year. Additionally the Estimize community forecasts that Lowe's will beat the Street's EPS target by a modest 2c per share. If Lowe's can report sales growth over a period in which Home Depot had a pull back, it could be another step in the process of closing down the gap with its larger competitor.

Disclosure: No positions