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Lowe's (LOW) Down 5.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Lowe's (LOW). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lowe's due for a breakout? 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 drivers.

Lowe's Q2 Earnings Surpass Estimates, Sales Fall Y/Y

Lowe’s posted better-than-expected results in second-quarter fiscal 2023, with the top and bottom lines beating the Zacks Consensus Estimate. However, both sales and earnings fell from the previous fiscal year’s quarterly readings.

Quarter in Detail

Adjusted earnings per share (EPS) of $4.56 surpassed the Zacks Consensus Estimate of $4.49 but dipped 2.4% from the second-quarter fiscal 2022 tally.

Net sales of $24,956 million decreased 9.2% year over year but came ahead of the consensus estimate of $24,936 million. Comparable sales (comps) fell 1.6% in the quarter under review, with sturdy spring recovery as well as Pro and online sales growth, somewhat offset by lumber deflation and lower DIY discretionary demand.

Gross profit slipped 8% year over year to $8,399 million, while the gross margin increased 42 basis points (bps) to 33.66%. Operating income amounted to $3,886 million, down 8.1% year over year. However, the operating margin expanded 18 bps from the year-earlier quarter to 15.57%.

Other Financial Aspects & Developments

LOW ended the quarter with cash and cash equivalents of $3,494 million, long-term debt (excluding current maturities) of $35,839 million and shareholders’ deficit of $14,732 million.

Lowe’s generated cash flow from operations of $5,968 million for the first six months of fiscal 2023. Capital expenditures amounted to $765 million for the aforementioned period. For fiscal 2023, LOW expects a capex of up to $2 billion.

In the reported quarter, Lowe’s bought back 10.1 million shares for $2.2 billion and paid out dividends of $624 million.

Outlook

For fiscal 2023, LOW still expects revenues to be $87-$89 billion versus $97.1 billion delivered in fiscal 2022.

Comps in fiscal 2023 are envisioned to be in the range of -2% to -4% from the year-ago period. The adjusted operating margin is expected to be 13.4-13.6%. Management anticipates EPS of $13.20-$13.60 for the fiscal year versus earnings of $13.89 per share in fiscal 2022. It envisions adjusted effective tax rate to be about 25%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Lowe's has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 A. 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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