How Lowe's Hopes to Become No. 1

On Wednesday, Lowe's (LOW -1.40%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Lowe's has played the role of sidekick to industry leader Home Depot (HD -1.77%) for a long time, with Home Depot having earned a spot in the Dow Jones Industrials while Lowe's has languished behind. Yet despite having a market cap just half Home Depot's size right now, Lowe's has plenty of growth opportunities that could help it catch up with its archrival. Let's take an early look at what's been happening with Lowe's over the past quarter and what we're likely to see in its quarterly report.

Stats on Lowe's

Source: Yahoo! Finance.

Did Lowe's earnings get chilly this quarter?
Analysts have largely stuck by their views on Lowe's earnings, cutting just a single penny from their estimates for the just-ended quarter and the current fiscal year. The stock has done fairly well, rising about 8% since mid-February.

Lowe's has a much longer history of serving the home-improvement market than many investors realize. Even though the company has seen plenty of up and down cycles, Lowe's has managed to earn a spot among the Dividend Aristocrats by raising its annual dividend every single year for the past half-century. More recently, Lowe's has accelerated its dividend growth pace, with its payout having almost doubled in just the past five years.

But Lowe's hasn't done a good job of matching up against Home Depot's strength. While Home Depot has incorporated better use of its workers' skill sets and greater use of innovative technology to help improve efficiency and boost profits from its commercial customers, Lowe's has faced the headwinds of weakness in the appliance space and other pure do-it-yourself project materials.

Moreover, some investors worry that the huge run-up in Lowe's stock price already indicates overheated expectations for the retailer. Earlier today, Oppenheimer downgraded the stock, maintaining its favorable price target on Lowe's but removing its buy rating in advance of the earnings release.

Still, Lowe's expects the good times to continue and is taking steps to capitalize, with plans to hire 9,000 permanent part-time employees. CEO Robert Niblock believes that the recent rebound in home prices is finally making customers willing to spend on improving their homes, and it expects to see greater remodeling activity in the near future.

In Lowe's earnings report, look closely at the impact of a fairly cold start to the spring season on its sales of garden and outdoor materials. Wal-Mart (WMT 1.32%) already identified the weather as a factor in its weak quarterly report, and many of its stores have extensive lawn and garden offerings. If Lowe's follows suit, it could prove to be the catalyst that sends the stock falling from its heights, at least temporarily.

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