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).
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.
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.
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:
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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.
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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.
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