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Lowe’s Companies, Inc. (LOW): Pershing Square Believes in Its Business Transformation

Nina Zdinjak

Billionaire Bill Ackman recently commented Lowe's Companies, Inc. (NYSE:LOW), in its quarterly investor letter (download here) and said that he thinks the company's shares have serious growth potential. He emphasized that this potential mainly lies in the management's good work on closing the performance gap with The Home Depot, Inc. (NYSE:HD).

"Lowe’s Companies, Inc. (“LOW”)

Lowe’s continues to make progress toward closing the performance gap with its direct competitor, Home Depot. The company has undertaken a series of initiatives to improve customer service and product merchandising while reducing structural costs and investing in IT systems and product distribution facilities. We expect these recent actions to improve comparable sales and profitability beginning later this year and to a greater extent in future years.

Lowe’s share price has increased 16% year-to-date, yet currently trades at only 17 times analyst estimates of 2019 earnings, which do not reflect the significant potential for future profit improvement. We believe the shares have the potential to appreciate significantly as the positive financial impact of the company’s business transformation becomes more evident over the course of the year, and management continues to execute on closing the performance gap with Home Depot."

[caption id="attachment_523239" align="aligncenter" width="750"] Copyright: luckydog / 123RF Stock Photo[/caption]  

Copyright: luckydog / 123RF Stock Photo

Lowe’s Companies is a home improvement company with a market cap of $74.12 billion that offers a variety of products for home repair and maintenance, and home decor. It manages around 2,370 hardware/home improvement stores across the US, Mexico, and Canada while being based in Mooresville, North Caroline. Over the past 12 months, Lowe’s Companies’ stock lost 2.71%, and on May 29th it had a closing price of $93.23.  The company is trading at a price-to-earnings ratio of 31.69.

In its last financial report for the first quarter of 2019, Lowe’s Companies disclosed net earnings of $1 billion and diluted earnings per share of $1.31, which compares to net earnings of $988 million and diluted EPS of 1.19 in the same quarter of 2018. Recently, Bank of America set a price target of $135 on Lowe's Companies' stock followed by a 'Buy' rating on it, while somewhat earlier SunTrust Banks restated its 'Buy' rating on it with a price target of $120.

Among smart money investors tracked by Insider Monkey, the most valuable position in Lowe's Companies at the end of Q1 2019 was actually held by Bill Ackman's Pershing Square. The stake was valued at $1.02 billion, on the account of 9.32 million shares. On Pershing Square's heels was D. E. Shaw's D E Shaw with $954.78 million worth a position, comprising of 8.72 million shares. Other hedge funds with notable positions included Ken Griffin's Citadel Investment Group, Jim Simons' Renaissance Technologies, and Daniel S. Och's OZ Management.

Disclosure: None. This article is originally published at Insider Monkey.