Foolish Forecast: Will Lowe's Lap Home Depot?

Home-improvement superstar Home Depot (NYSE: HD) reported earnings on Tuesday, and the news wasn't pretty. Will handyman's helper Lowe's (NYSE: LOW) fare any better when it reports its own Q3 2007 numbers? They're due out just the other side of the weekend, you know.

What analysts say:

• Buy, sell, or waffle? Nineteen analysts follow Lowe's, down one from last quarter. Twelve of them rate Lowe's a buy, and seven more a hold
• Revenue. Wall Street expects to see sales rise 5% to $11.78 billion.
• Earnings. Profits are predicted to fall 11% to $0.41 per share.

What management says:
Lowe's gave its investors a glimpse into the future at its 2007 Analyst and Investor Conference in September, and fellow Fool Larry Rothman wondered whether its foundation was still cracked. By now, everyone knows about the difficulties facing the housing market, as homebuilders such as Pulte (NYSE: PHM), NVR (NYSE: NVR), and D.R. Horton (NYSE: DHI) continue to struggle. And about the credit crunch brought on by the subprime debacle. One economic headwind you may not have noticed, however, is the way that "drought conditions in the Mid-Atlantic, Southeastern and Western regions of the country have impacted the performance of outdoor categories" at Lowe's. Adding this to its list of troubles, Lowe's warned that it may earn "slightly" less than its previous guidance of $1.97 to $2.01 per share this year.

What management does:
Yet Lowe's continues to make the best of a very bad situation. The firm has held steady or improved its rolling gross margin in every quarter for the past year, and last quarter even managed to shore up its net and improve its operating margins.

Margins	5/06	8/06	11/06	2/07	5/07	8/07
Gross	34.4%	34.3%	34.4%	34.5%	34.5%	34.8%
Operating	11.2%	11.2%	11.3%	11.0%	10.6%	10.7%
Net	6.7%	6.7%	6.7%	6.6%	6.4%	6.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Chief Financial Officer Robert Hull opined that 2008 will probably be another slow year for Lowe's, with sales growing only in the mid-single digits. On average over the next three years, however, Lowe's believes it can grow its sales at an 8% to 11% clip, and its earnings at 12% to 15% per year -- suggesting further margin improvements. Cash flows from operations are expected to grow faster than earnings, because of working capital initiatives.  

Mid-teens profits growth on a stock currently selling for just 12 times trailing earnings? For investors with patience, this stock just might be worth waiting around for.

For the latest lowdown on Lowe's, read:

• Fool on the Street: Lowe's Plan for Improvement
• Is Lowe's Foundation Still Cracked?
• This Just In: Upgrades and Downgrades
• Lowe's Grows Despite Housing Woes