What happened
Shares of Lowe's (LOW 1.92%) were up by 2% as of 12:37 p.m. ET Wednesday ahead of the Federal Reserve's announcement on interest rates.
Investors are concerned about rising inflation, supply chain problems, and the impact that higher interest rates could have on Lowe's business in the near term. After rising sharply through 2021, the stock has fallen 25% year to date as its revenue growth slowed considerably in recent quarters.
NYSE: LOW
Key Data Points
So what
The Federal Reserve is expected to announce a 0.75 percentage point increase to the federal funds rate at 2 p.m. ET. That would put the target for the benchmark rate in a range of 3% to 3.25% -- its highest level in over a decade. Many investors will be looking for signals of what's coming next.
Some are concerned about what further rate hikes would do to the housing market, which has experienced rapid appreciation in home prices over the last few years. This has coincided with strong spending by homeowners on remodels and other projects. Lowe's reported a net sales increase of 24% during its fiscal 2020 (which ended in January 2021), followed by a 7% increase in its fiscal 2021.
Now what
In the retailer's most recently reported quarter, sales fell slightly but were mostly holding steady with prior-year levels. Management doesn't anticipate much of an impact from higher interest rates on the business, since about 90% of its customers have fixed-rate mortgages. The way management sees it, higher interest rates incentivize customers to stay put and invest more in their current homes.
At this point, investors may not have much to lose with the shares. The stock is attractively valued at a price-to-earnings ratio of 15.3. That doesn't discount much long-term growth, so a lot of the bad news may already be priced in.
