Please ensure Javascript is enabled for purposes of website accessibility

Lowe's Looks to Get Back On Track With Its Fourth-Quarter Report

By Joseph Solitro – Feb 10, 2014 at 10:14AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lowe's is about to release its fourth-quarter results, so let's find out if now is the time to buy the beaten-down stock.

As the stock market has shown weakness to begin 2014, the only things that seem to be moving stocks higher are positive earnings reports. Lowe's (LOW -0.75%) hopes that this will be the case when it reports its fourth-quarter earnings on Feb. 26, as its stock sits more than 12% below its 52-week high. Let's take a look at the company's recent performance and the expectations for the upcoming report to determine if this is our opportunity to buy. 

The home improvement giant
Lowe's is the second-largest home improvement retailer in the world. The company currently operates 1,831 home improvement stores in the United States, Canada, and Mexico. Lowe's was founded in 1946 and it has grown into a Fortune 100 company that serves more than 15 million customers each week.

Source: Lowe's.

The most recent release
On Wednesday, Nov. 20, Lowe's released its third-quarter report for fiscal 2013, which was mixed in comparison with analysts' estimates. Here's an overview of the report:

Earnings per share $0.47 $0.48
Revenue $12.96 billion $12.72 billion

Lowe's earnings per share increased 34.3% and revenue rose 7.3% year over year, driven by comparable-store sales growth of 6.2%. Gross profit rose 8.2% to $4.48 billion, as gross margin expanded 23 basis points to 34.58%. Lowe's CEO, Robert Niblock, was very positive in the report, stating, "the home improvement industry is poised for persisting growth in the fourth quarter and further acceleration in 2014." Overall, Lowe's had a great quarter regardless of how it measured up to analyst expectations, and I believe Niblock's comments indicate that the momentum will carry over into the final quarter of the fiscal year.

Expectations and what to watch
Lowe's fourth-quarter results are due out before the market opens on Feb. 26 and the estimates call for solid growth. Here's an overview of the current expectations:

Earnings per share $0.32 $0.26
Revenue $11.77 billion $11.05 billion

These estimates would result in Lowe's earnings per share increasing 23.1% and revenue rising 6.5% year over year, although some analysts are becoming less bullish due to the cold weather. However, I believe that these statistics are attainable for Lowe's and the cold weather will not have had a major effect on earnings; I think consumer spending will see positive effects on the days leading up to the storms as consumers purchase generators and other products in preparation for them. Following the cold weather, consumers make purchases to repair storm damage, which will offset reduced store traffic during the intense weather. That said, one update will be just as important as earnings: guidance for fiscal 2014.

It will be crucial for Lowe's to provide an outlook for fiscal 2014 within analysts' estimates; current expectations call for earnings in the range of $2.38 to $2.83 per share on revenue of $55.2 billion to $58.6 billion. I believe Lowe's will guide within this range but at the lower end of it, since the company is often conservative in its guidance and seems to practice the "underpromise, overdeliver" method of forecasting. If earnings meet or exceed expectations and the company's outlook is within expectations, Lowe's stock will likely start a move back toward its 52-week high.

Indicator to watch
One of the most important indicators to watch during the lead-up to Lowe's earnings release will be Home Depot's (HD -0.33%) fourth-quarter report on Feb. 25. The report is due out before the market opens, so investors will have an entire trading day to read through it and determine the strength and condition of the industry. Here are the current consensus estimates:

Earnings per share $0.73 $0.67
Revenue $18.01 billion $18.25 billion

These expectations call for earnings to increase 9% and revenue to decline 1.3% year over year. This seems conservative, especially after Home Depot described the housing market as a "bright spot" in the economy and proceeded to raise its full-year forecast in the third quarter. For this reason, I am confident that Home Depot will meet or exceed the current earnings and revenue estimates. Investors should use Home Depot's report as a direct indicator of things to come for Lowe's and initiate or adjust positions accordingly.

The Foolish bottom line
Lowe's may not be the largest company in its industry, but it is still a force to be reckoned with. It is about to report fourth-quarter results and the current estimates look well within reach, but I think investors should wait to see what Home Depot's earnings report has to say before initiating any new positions. If Home Depot's report looks strong and Lowe's stock does not move higher with it, I believe that will result in the best buying opportunity.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Home Depot. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lowe's Stock Quote
$207.47 (-0.75%) $-1.57
Home Depot Stock Quote
Home Depot
$315.96 (-0.33%) $-1.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.