Shares of Lowe’s Cos. (LOW) have churned in recent months to within arms-length of the 52-week high set in March. Admittedly, the current forward multiple for the home improvement retailer is on the higher end of where we might usually prefer. But we think EPS estimates for the next couple of years could be overly pessimistic, notes John Buckingham, editor of The Prudent Speculator.
Indeed, the figures for 2025 and 2026 have fallen by 28% and 34%, respectively, over the past two years. At an industry conference earlier this month, CEO Marvin Ellison highlighted the success of Lowe’s perpetual productivity improvement (PPI) initiatives, noting that they have expanded from store operations to encompass supply chain, merchandising, HR, and IT.
He emphasized, “We’re excited about what the future holds,” particularly with the front-end transformation that enhances productivity and omnichannel capabilities. Lowe’s remains focused on increasing labor, space, and expense efficiency, delivering sustained value for shareholders.
Lowe's Cos. (LOW)
On the consumer front, the CEO expressed that he anticipates a cautious DIY market, impacted by rising interest rates and inflation (even as both have moderated in recent months), but expects Pro customer demand to remain resilient. Mr. Ellison reaffirmed that Lowe’s is well-positioned to manage cost pressures, including potential tariff increases, into 2025. The company is focused on maximizing productivity from its 1,750 stores while being opportunistic with new store openings and selective in the use of promotions to protect margins.
We appreciate the competitive dynamics given that Lowe’s is one of just two major players in the home improvement space. We also continue to like that Lowe’s is focused on improving its return on invested capital, streamlining the business, investing in the Pro business, and returning capital to shareholders.
With housing arguably getting a shot in the arm from Fed interest rate cuts, we are okay continuing to hold, despite an NTM P/E multiple of 21.4 and relatively modest 1.8% dividend yield. For the time being, our target price has been lifted to $274.
Recommended Action: Buy LOW.
