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Lowe’s Companies Inc (NYSE:LOW) shares remained volatile in early trading on Wednesday, after the company reported mixed results for its fiscal second quarter.
The company reported its results amid an exciting earnings season. Here are some key analyst takeaways.
Analyst Robert Ohmes reiterated a Buy rating while reducing the price target from $280 to $275.
Lowe’s reported its quarterly adjusted earnings at $4.10 per share, surpassing estimates of $4.00 per share, Ohmes said. He added, however, that comps declined by 5.1% year-on-year, "driven by continued softness in DIY bigger-ticket projects and unfavorable weather which negatively impacted seasonal categories."
The company's gross margins contracted 19 basis points (bps) year-on-year to 33.5%, "as lower transportation costs and ongoing PPI initiatives were offset by continued supply chain investments," the analyst stated. "LOW continues to gain traction with its Total Home strategy, which was reflected in positive 2Q growth in both Pro comps and online sales," he further wrote.
Analyst Steven Shemesh maintained a Sector Perform rating while cutting the price target from $245 to $238.
Lowe's delivered mid-single-digit growth in Pro comps and management attributed this strength to market share gains, Shemesh said. "The team specified that Pro growth is being driven by both increased spend by existing Pro customers and new Pro shoppers," he wrote.
Despite the decline in comp sales, the company's operating margin contracted by only 110 bps to around 14.4%, which exceeded consensus of 14.1%, the analyst stated. The positive contribution from PPI initiatives is likely to ramp into the back half of the year, he added.
Analyst Peter Keith reaffirmed an Overweight rating while reducing the price target from $264 to $262.
The company delivered mixed results for the quarter and its guidance reduction for the year was expected, Keith said. Although sales disappointed, Lowe's managed to beat earnings estimates on "impressive cost management," he added.
"Pro comp inflected positive to +MSD %, citing various initiatives and market share capture of the small/medium-size Pro, who tends to be adaptive to the current environment," the analyst wrote. DIY remained sluggish, which management "attributed to the tough macro backdrop rather than share loss," he further wrote.
Check out other analyst stock ratings.
Analyst Michael Baker reiterated a Neutral rating and price target of $240.
Despite a weak macro, mid-single-digit growth in Lowe's Pro business "stood out on the positive side," Baker said. "Pro remains the biggest difference in sales productivity" between Lowe's and Home Depot Inc (NYSE:HD), "accounting for more than 100% of the delta," he added.
"LOW is taking share in the small to mid pro business relative to HD (albeit off of a lower base), helped by years of investing in improvement," the analyst wrote. Although management reduced their full-year guidance, the company still expects gross margins to expand by about 50 bps in the back half of the year, he further stated.
Analyst Seth Basham maintained a Neutral rating and price target of $250.
Although Lowe's missed revenue estimates, its margins and earnings exceeded expectations, Basham said. As widely expected, the company reduced its full-year top- and bottom-line guidance, he added.
"Continued pressure on consumer discretionary spending and the home improvement industry is more extensively weighing on the DIY segment, a negative for LOW relative to HD given its higher exposure to this consumer segment (~75% of sales vs. ~55% at HD)," the analyst wrote. Guidance from both companies indicates that Lowe's comps could "modestly outperform" Home Depot's in the back half, he further stated.
Analyst Bradley Thomas maintained a Sector Weight rating on the stock.
Lowe's reported mixed results, with disappointing comps but an EPS beat on continued cost control, Thomas said. He added, however, that Lowe's Pro comps grew by mid-single-digits, while Home Depot's declined in the quarter.
"Looking ahead, management expects 3Q operating margins to decline ~70 bps y/y, which implies 3Q EPS ~$0.30, below prior Street estimates," the analyst wrote. Lowe's also reduced its full-year guidance, "which reflects lower than expected DIY sales and a pressured macroeconomic environment," he further stated.
LOW Price Action: Shares of Lowe’s Companies had risen by 0.61% to $241.78 at the time of publication on Wednesday.
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