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Lowe's: No Clear Value Here

Mar. 02, 2020 7:02 AM ETLowe's Companies, Inc. (LOW)HD4 Comments


  • Lowe's dips to $110 on weak numbers and the market selloff.
  • The net payout yield is now 6.7% and the stock is usually a solid buy up at 8.0%.
  • The stock trades at 17x FY20 EPS estimates.
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Despite a relatively consistent growth model, Lowe's (NYSE:LOW) remains a highly volatile stock. My investment thesis warned investors the stock wasn't a hold above $120 following FQ3 results, and the market selloff isn't helping the stock following weak FY20 guidance.

Same Ole Lowe's

Even with a new CEO with a transformation plan to turn the home improvement chain into a digital leader in the space, Lowe's continued a history of missing consensus estimates. For FQ4, the retailer missed revenue estimates by $100 million marking the second consecutive quarter of a big revenue miss.

A big part of the corporate transformation plan by new CEO Marvin Ellison was eliminating a history of missing estimates despite constantly generating positive comps. The last quarter was another prime example where the company had 2.5% comp sales growth while analysts estimates were up at 3.5% due in large part to corporate guidance.

In addition, Lowe's constantly underperforms competitor Home Depot (HD) in the home improvement space. For the quarter ending January, Home Depot generated comp sales of 5.2%, or more than double the 2.5% level of Lowe's.

One can easily argue the same ole Lowe's is starting to re-emerge. The company wants to focus on supply chain transformation, merchandising excellence and operational efficiency, but Home Depot always outperforms them. The latest promise is a new website to help Lowes.com capture more e-commerce sales in comparison to Home Depot.

The company can have a goal of improving order fulfillment and delivery optimization, but Home Depot is the giant in the sector with $115 billion in annual sales while Lowe's is down at only $72 billion. Over the last decade, the revenue gap has only widened and the website updates appear only set to bring the company up to date with competitors.

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ChartData by YCharts

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

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