Lowe's Companies, Inc. (LOW)

Equity
US
Basic Materials

RISK

RETURN

Key risk factors

Negligible price volatility

Strong trading liquidity

Strong & resilient to price shocks

Key return factors

Decent dividends

Somewhat favourable analyst view

Good margins and returns

Company profileLowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States and internationally. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. It provides home improvement products, such as appliances, seasonal and outdoor living, lawn and garden, lumber, kitchens and bath, tools, paint, millwork, hardware, flooring, rough plumbing, building materials, décor, lighting, and electrical. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private brand products to homeowners, renters, and professional customers. As of January 28, 2022, it operated 1,971 home improvement and hardware stores. The company also sells its products through websites comprising Lowes.com and Lowesforpros.com; and through mobile applications. Lowe's Companies, Inc. was founded in 1921 and is based in Mooresville, North Carolina.

Valuation: Fairly valued

Multiple

TTM

NTM

P/E

17.20

17.30

PEG

3.20

P/B

-8.50

-16.80

P/S

1.50

P/FCF

14.90

21.40

EV/EBITDA

12.50

11.20

Based on key historical and expected multiples, the stock is fairly valued relative to its peers. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 4ppts and its growth decelerated by 8ppts in the past month. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months its performance trailed that of this peer group by 3ppts and its growth decelerated by 10ppts in the previous month. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 240 and suggests 10% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 290.0. This translates into 33% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 196.0. This is equivalent to 10% downside potential in the worst case.

Profitability: Good

RoE

Lowe's Companies, Inc. reported a return on equity (RoE) of -42.6% in the last 12 months, up from -49.4% in FY23. The market consensus projects an RoE of -73.3% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 14.2% in the last 12 months, a decrease from 16.6% in FY23. The market analysts predict that RoA will be 29.3% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 23.5%, above the peers. The consensus estimate for FY24 for RoCE is 70.5%, again ahead of the peers.

Net margin

EBITDA margin

Historically, LOW has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 7.8%, down from 8.6% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 14.5% in the last 12 months, a decline from 15.4% in FY23.

RoIC / WACC = 4.8(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 4.8 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

LOW reported revenue of USD 85 393mn in the last 12 months, down 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 5% from FY23 to USD 12.47. Market expects EPS to reach USD 12.50716 in FY24.Revenue has been declining slowly over the past several years (negative), while EBITDA has grown slowly despite declining revenue thanks to decent cost control (overall negative-to-neutral). This all contributed to continued EPS growth (positive-to-neutral). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of EPS. On the positive side, revenue dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Considerable

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, negligible return on capital, poor working capital management, and an unfavourable capital structure.

Volatility: Negligible

In normal market circumstances, LOW is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, LOW is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Very low

LOW boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.