Lowe's (LOW) Up 11.5% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Lowe's (LOW). Shares have added about 11.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lowe's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lowe's Q1 Earnings Beat on Robust Actions Amid Pandemic
Lowe’s reported strong first-quarter fiscal 2020 results, which marked the fourth straight quarter of an earnings beat and a top-line beat after two consecutive quarters of misses. Results have primarily benefited from the company’s actions to adjust operations in the wake of the coronavirus outbreak in late February.
Moreover, the company’s fiscal first-quarter performance was attributed to gains from its retail fundamentals strategy, robust execution and resilience in the home improvement business model. Also, it benefited from the ability to cater to the rise in online demand due to the pandemic. This resulted in a nearly 80% increase in online sales during the first quarter. Moreover, the company notes that gains from its business model and other efforts have continued to be witnessed in May.
Despite the strong results, it withdrew the guidance for fiscal 2020 due to the lack of visibility about the future trends, owing to the coronavirus outbreak.
In early March, the company shortened its store operating hours to implement cleaning protocols and enable restocking shelves to better serve customers amid the pandemic. Further, it effectively implemented significant operational changes, including measures to facilitate social distancing in its stores.
Apart from the aforementioned actions, it invested nearly $340 million for the safety and health of its employees, and providing benefits to them as well as support healthcare workers and first responders.
Q1 in Detail
Adjusted earnings of $1.77 per share surpassed the Zacks Consensus Estimate of $1.29 and rose 45% year over year.
Net sales of $19,675 million grew 10.9% year over year and surpassed the Zacks Consensus Estimate of $18,259 million. Notably, comparable sales increased 11.2% during the quarter under review. Comparable sales for the U.S. home improvement business reflected a robust rise of 12.3% in the quarter, following an increase of 2.6% in the preceding quarter.
Gross profit improved 16.7% year over year to $6,513 million, while gross margin expanded 164 basis points to 33.1%, driven by strong top-line growth.
Other Financial Aspects
Citing the uncertain economic environment, Lowe’s raised $4 billion in senior unsecured notes and improved the capacity of its revolving credit facility by $770 million. Additionally, it repaid $500 of fixed notes due on Apr 15, 2020.
Consequently, it ended the quarter with cash and cash equivalents of $5,955 million. Moreover, it has $3 billion available on its revolving credit facility to cater to unexpected liquidity needs in the near term. As of May 1, the company had long-term debt (excluding current maturities) of $20,200 million and shareholders’ equity of $1,716 million. It generated cash flow from operations of $4,450 million as of May 1, 2020.
In the reported quarter, Lowe’s repurchased shares worth $947 million and distributed $420 million as dividends. However, it has suspended the share repurchase program for the rest of fiscal 2020.
The company ended the quarter with 1,970 home improvement and hardware stores across the United States and Canada.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 16.91% due to these changes.
VGM Scores
Currently, Lowe's has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lowe's has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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