Lowe's Companies, Inc. (LOW): Zacks Rank Buy

Zacks

Lowe's Companies, Inc. (LOW) continues to live up to its motto of 'never stop improving'. The company recently delivered its 3rd consecutive positive earnings surprise, driven in part by a 3.5% increase in same-store sales.

Management also laid out bullish guidance for 2012, prompting analysts to revise their estimates higher and sending the stock to a Zacks #2 Rank (Buy).

Company Description

Lowe's is the second largest home improvement retailer in the world. It operates 1,745 stores throughout North America.

The company is headquartered in Mooresville, North Carolina and has a market cap of $36.4 billion.

Fourth Quarter Results

Lowe's delivered strong fourth quarter results on February 27. Earnings per share came in at 29 cents, crushing the Zacks Consensus Estimate of 23 cents. It was a stellar 24% increase over the same quarter in 2010.

Sales were up 11% to $11.629 billion, well ahead of the Zacks Consensus Estimate of $11.334 billion. This was driven in part by a solid 3.5% increase in same-store sales.

A declining gross margin was mostly offset by lower selling, general and administrative expenses as a percentage of sales. The pre-tax operating margin came in at 4.2%, down slightly from 4.4% in the previous quarter.

Earnings per share was boosted by a 9% decline in shares outstanding.

Outlook

Following strong Q4 results, management outlined its guidance for 2012. The company expects earnings per share between $1.75 and $1.85 on same-store sales growth of 1-3%.

This prompted analysts to revise their estimates higher, sending the stock to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2012 is now $1.83, within guidance, and representing 8% growth over 2011 EPS.

The 2013 consensus estimate is currently $2.23, corresponding with 22% growth.

Valuation

Although shares are up more than 9% since I last wrote about Lowe's on January 25, valuations still look reasonable.

Shares trade at 16x 2012 earnings, a discount to the industry median of 17x, and in-line with its historical median. Its price to book ratio of 2.2 is also below the industry multiple of 3.0 and its historical multiple of 3.0.

It also offers a dividend that yields a solid 1.9%.

The Bottom Line

With strong earnings momentum, solid growth projections, a solid yield and reasonable valuation, Lowe's still offers investors a lot of upside potential.

This Week's Growth & Income Zacks Rank Buy Stocks:

Tim Hortons Inc. (THI) recently announced better than expected fourth quarter results, a $200 million stock buyback, and a 24% increase in its dividend. This prompted analysts to revise their estimates higher for both 2012 and 2013. It is a Zacks #2 Rank (Buy) stock. Read the full article.

Ecopetrol S.A. (EC) delivered stellar fourth quarter results on February 15, prompting a big increase in earnings estimates going forward. It is a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts project 17% EPS growth both this year and next. On top of this growth, the company pays a dividend that yields a solid 2.8%. Valuation is attractive too with shares trading at less than 12x forward earnings. Read the full article.

Texas Roadhouse, Inc. (TXRH) has seen a solid rise in earnings estimates after it delivered better-than-expected fourth quarter results, including a 5.6% increase in same-store sales. It is a Zacks #2 Rank (Buy). The company also recently announced a 12.5% increase in its dividend. It currently yields 2.2%. Read the full article.

Chesapeake Midstream Partners, L.P. (:CHKM) offers investors double-digit earnings growth and a juicy 5.4% yield at a reasonable price. The partnership also recently delivered better than expected fourth quarter results, prompting analysts to revise their estimates higher for 2012. It is a Zacks #2 Rank (Buy). Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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