Lowe's (LOW) Up 16.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Lowe's (LOW). Shares have added about 16.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Lowe's Q4 Earnings & Sales Beat, Digital Sales Strong
Lowe’s reported robust fourth-quarter fiscal 2020 results, wherein earnings and sales outpaced the Zacks Consensus Estimate and grew year over year. Notably, the company delivered the seventh straight earnings beat and the fourth consecutive sales surprise.
Results benefited from its focus on the execution of strategies to meet the strong demand across the board. Backed by the demand, the company recorded sales growth of more than 16% across the all merchandise departments and more than 19% in all U.S. regions. Apparently, sales at lowes.com increased 121% in the fiscal fourth quarter. Moreover, the company is focused on improving operating efficiency. Going forward, management is committed toward expanding market share and boosting operating margin expansion.
Moreover, the company has been investing in providing pandemic-related support to frontline hourly associates through bonuses and incentives. In the reported quarter, management invested more than $100 million to assist frontline hourly associates. This brought the total COVID-related associate financial support to above $900 million for fiscal 2020. It invested about $1.3 billion in relation to COVID-related support for associates, store safety and community pandemic relief in the same fiscal.
Q4 in Detail
Adjusted earnings of $1.33 per share surpassed the Zacks Consensus Estimate of $1.22 and rose 41.5% year over year.
Net sales of $20,311 million rose 26.7% year over year and surpassed the Zacks Consensus Estimate of $19,542 million. Notably, comparable sales increased 28.1% during the quarter under review. Comparable sales for the U.S. home-improvement business reflected a robust rise of 28.6% in the quarter.
Gross profit improved 29.6% year over year to $6,456 million, while gross margin expanded 70 basis points to 31.8% on strong top-line growth.
Other Financial Aspects
The company ended the fiscal fourth quarter with cash and cash equivalents of $4,690 million, long-term debt (excluding current maturities) of $20,668 million, and shareholders’ equity of $1,437 million. Moreover, its revolving credit facility had $3 billion of undrawn capacity at the end of the fiscal fourth quarter. This provides the company with adequate liquidity to meet future contingencies.
Lowe’s generated cash flow from operations of $11,049 million as of Jan 29, 2021. Moreover, it spent $1,791 million toward capital expenditure in fiscal 2020.
During the fiscal fourth quarter, Lowe’s bought back 21.1 million shares worth $3.4 billion and paid dividends of $452 million. In fiscal 2020, the company returned $6.7 billion to shareholders, including repurchases of $5 billion and dividends of $1.7 billion.
Key Things to Note
Lowe’s continues to witness sales momentum in February. Driven by a strong quarterly performance, management reiterated the perspectives issued at the Dec 9, 2020 Investor Update. On Dec 9, the company had introduced the Total Home strategy that includes providing complete solutions for various types of home repair and improvement needs. The strategy is an extension of the company’s retail-fundamentals approach.
Management highlighted that the new strategy focuses on strengthening customer engagement and market share, especially through the intensified focus on Pro customers. Moreover the initiative encompasses improving online business, refurbishing installation services as well as enhancing localization efforts.
Furthermore, Lowe’s is planning share buybacks of $9 billion and capital expenditures of $2 billion in fiscal 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
VGM Scores
At this time, Lowe's has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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