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Lowe's Companies, Inc. Message Board

  • astral_tsar astral_tsar Feb 18, 2003 9:26 PM Flag

    Re: HD v LOW: thanks

    rlibbert opined:
    "I'd like to point out a crucial difference here. HD is already in the metro markets. They had %100 of the pie. Lowes is just now moving into those markets. Even if they get only %50 percent of the pie, that's %50 more than they had before, and in turn, HD has %50 less.
    Simple, eh?"

    Well, sure, it's simple ... once Lowe's takes half of the incumbent's market while remaining profitable. And it's simplicity itself for the people in Hell to drink their ice water ... once the waiter brings it.

    That's really the source of my confusion: the market apparently believes that: a company with (a) lower profit margin and (b)higher borrowing costs (LOW) is strongly favored to beat (c) the incumbent (HD), in (d) head-to-head competition for the same customers in the same neighborhoods). This kamikaze 'strategy' must be executed outside the niches that shelter LOW from direct competition against a more-profitable market leader.

    And maybe the underdog _will_ win ... but why would this shaky story lead me to pay such a large premium (in share price plus debt on the books): nearly twice as much for 10% more earnings?

    I have no problem betting on the underdog ... but why give 2:1 odds to the favorite?

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    • Did you forget your own stupid post. Yes the one about HD keeping LOW around. That's what was stupid.

      I am a fan of Dell, but even I know they didn't invent JIT. But they practice it better than nearly every other company.

      If you've seen my posts, you know that I am long HD. However I think LOW is the superior performing company and my portfolio reflects that bias.

      I think HD could be four quarters away from reversing the downward trend. I hope they can do it two. But I think Nardelli lacked retail experience and the learning curve was longer than the Board perhaps anticipated.


    • Come on, give me a break. IBM and Dell. Dell actually INNOVATED something.....the build to order model and JIT inventory methods. They are a novel company. LOW and HD are retailers, with LOW being way overleveraged currently ALA AMD. Look at INTCs balance sheet. They have no debt and hordes of cash. AMD, OTOH, has hordes of debt and little cash. HD has hordes of cash and little debt. Once LOW invents a new method of selling consumers products then you can compare it to Dell. Having a blue banner instead of an orange one doesn't cut it.

      I compare LOWs recent run up to AMDs run up last year when AMD went up to 25-30 bucks a share.

    • and we keep you around so we look smart.

    • And I suppose IBM keeps Dell around and Sam's Club keeps Costco around.

      YOu know what they say if wishes were horses,


    • LOW is to HD as AMD is to INTC. HD lets LOW survive and right now the street likes LOW just like they liked AMD. HD has the stronger balance sheet and can destroy LOW anytime they want. HD keeps LOW around to avoid being classified as a monopoly.

    • jbk_id patiently pointed out: "Actually, I think LOW's PEG is slightly lower than HD based on the info on Yahoo. "

      Well, thanks! You're right, Yahoo does list LOW's PEG slightly *lower* (better) than HD's. I'm trying to trace my calcs on the higher figure & see whether I really screwed up, or just used different time periods than Yahoo did.

    • As a holder of both HD and LOW, I wish the hell that they would both soar. Bashing each others stock makes absolutely no sense, nor does it affect the price. If I had my druthers, I would like to see HD outperform LOW, simply because I own twice as many shares. I don't, however, want to see low be unsuccessful.

    • In apparent confusion about the number of shares outstanding, "camoman270" begged:

      "Have you factored in the future spending of 4 billion for revamping their less than competitive stores to go to updated looks and wider isles ( you know the ones that will make them more desirable like lowe's). into the DEBt ratio's you are so proud of??? "

      Well, for HD 4 billion dollars will be about $1.70 per share. Do you guys own calculators?

      Nobody here has even tried to explain why LOW should boast (price+debt)/earnings 1.9 times that of HD. [Sure you can come up with a few numbers that favor LOW. But they stack up to "feisty underdog", not "the next big thing".] Why 1.9? If rhetoric is the key to stock valuation, why not give LOW a PE of 30? 50? 100? Good luck.

      So I'll sign off with this: "However it may appear, shares of stock are not lottery tickets but fractions of ownership in business enterprises" -- Peter Lynch

    • The issue is not about profit margin or cash/debt level. It's about growth and HD simply failed to manage its growth. While LOW continued to beat estimates by wide margin, HD's outlook became less and less rosy and it eventually led to the warning last quarter and again in January.

      The problem of LOW entering HD's market is real. Whenever LOW opens a new store across from the old HD store, it's likely to be bigger and better. While HD can maintain its lead in that market, it'll undeniably lose share. Every customer that goes to the new LOW store represents lost sale for HD. After all, you can't do better than 100% share, and LOW simply needs to take some of that.

      With HD having stores in all the major markets, the growth of HD is likely to go more or less inline with the growth of home-improvement/DIY/building supply market. LOW however, can do better than that by opening more stores, a strategy that will be much more difficult to implement for HD. Obviously LOW will also encounter the same problem eventually, but for now LOW will grow faster than HD.

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