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Lowe's Has a Winning Quarter But Urges a Familiar Caution

Lowe's Has a Winning Quarter But Urges a Familiar Caution

If the news out of Lowe's (NYSE:LOW) seems familiar, there's a reason. In fact, there's a very good reason. The news out of Lowe's features reports of gains for this quarter, and substantial ones at that. Behind those gains, however, is a concern that the days of the home improvement rush may be coming to an end, and with it, some of the explosive gains we've seen lately out of Lowe's and other home improvement superstores.

A Winner by Any Standard

There's no denying that Lowe's turned in an excellent quarter. The company turned in earnings per share of $1.33, against an expected $1.21 based on studies at Refinitiv. Meanwhile, the company also turned in a win on earnings; where Refinitiv figures expected the company to bring in $19.48 billion, it brought in $20.31 billion instead.

Even better, Lowe's had a fantastic quarter in comparison to the same time the preceding year as well; while fourth quarter income for 2020 was $978 million total, the fourth quarter of 2019 saw income of $509 million, leaving the latest fourth quarter figure nearly double that of 2019.  Same-store sales were up 28.6%, reports noted, and CEO Marvin Ellison reported that demand was universally higher in most every product category. Online sales were the clear winner, having increased 121% for the quarter.

Analysts Buying In on Lowe's Ongoing Success

Meanwhile, the broader analyst pool—as based on our latest research—suggests that picking up Lowe's is likely to be a good plan. The company has a current consensus rating of “buy”, and has had such a rating for the last six months.

“Stability” has been pretty much the order of the day out at Lowe's, with the ratings fluctuating very little in that entire six month time frame. Six months ago, the company had two “hold” ratings and 30 “buy” ratings to its credit. Three months ago, the “hold” count jumped to four, and “buy” fell to 27. A month ago, “hold” remained at four, but “buy” increased to 28. Today, we're still at four “hold,” but “buy” now stands at 29, making things just a bit less bullish than they were six months ago, but still quite bullish.

The price target, meanwhile, has inched upward almost imperceptibly in that six-month span. Six months ago, it sat at $163.03. Three months ago, it increased to $169.74, the biggest jump it would see in the six-month span. A month ago, it increased to $172 even before settling at today's level, $172.63.

A Potential Shift Back to Normal Ahead

Like I said, this is a surprisingly familiar outlook, because after covering Home Depot (NYSE:HD) yesterday, we heard almost exactly the same outlook. Things were great right now, it was said at Home Depot—and echoed today at Lowe's—but the conditions that made Home Depot's 2020 so absolutely fantastic are waning and in some cases receding altogether.

In this case, Lowe's own Chief Financial Officer David Denton laid out the case; home improvement sales in general are likely to decline in 2021 as more people get COVID vaccines and people start leaving their homes again as lockdowns fade into the past, in at least some level. We're already starting to see as much take place; AMC Theaters (NYSE:AMC) recently announced plans to reopen New York City theaters in March. The notion that the conditions seen back in 2020 will be seen again in 2021 seems to be a long shot at best.

That's going to help some companies, and hurt some others going forward. Lowe's, much like Home Depot, will likely be among those hurt as people start spending more time outside the house. People are going back to work on many fronts, including back to work in offices or buildings that aren't the house. Those who aren't, meanwhile, may well have lost their jobs for good, and aren't in a position to fix up the home that they may be about to lose. There's an eviction crisiscurrently in the works and it's not likely to help Lowe's bottom line much.

The conditions that impact Home Depot also impact Lowe's, and in roughly the same measures. We're going into spring, which means landscaping, and with word of a new stimulus payment about to hit in March, it's a safe bet that Lowe's will be able to push plants, trees, and lawn care supplies going into the summer months. The conditions that made Lowe's 2020 such a success, though, are likely off the table for the foreseeable future, and that's likely to take earnings figures and the share price down a peg with it. Consider taking profit now, but remember to get back in once normalcy reasserts itself, because Lowe's is still a solid company.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Lowe's Companies (LOW)
4.1982 of 5 stars
4.20 / 5 stars
Home Depot (HD)
4.5766 of 5 stars
4.58 / 5 stars
$350.39-2.6%2.57%23.50Moderate Buy$380.58
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