Here’s what to know beyond why Lowe’s Companies, Inc. (LOW) is a trending stock
Lowe’s (LOW) has been one of the most searched stocks on Zacks.com lately. So, you might want to consider some of the facts that could shape the stock’s performance in the short term.
Shares of this home improvement retailer have returned +1.9% over the past month compared to the +1.5% change in the Zacks S&P 500 composite. The industry Zacks Building Products – Retail, to which Lowe’s belongs , gained 1% during this period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
For the current quarter, Lowe’s is expected to post earnings of $4.68 per share, indicating a change of +10.1% from the prior year quarter. The Zacks consensus estimate has changed -0.1% over the past 30 days.
The current year earnings consensus estimate of $13.51 indicates a year-over-year change of +12.2%. This estimate has changed by +0.1% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $14.70 indicates a change of +8.9% from what Lowe’s is expected to report a year ago. Over the past month, the estimate has changed by -0.1%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Lowe’s is ranked Zacks Rank #2 (Buy).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For Lowe’s, the current quarter sales consensus estimate of $28.34 billion indicates a year-over-year change of +2.8%. For the current and future fiscal years, the estimates of $97.89 billion and $99.43 billion indicate variations of +1.7% and +1.6%, respectively.
Latest reported results and history of surprises
Lowe’s reported revenue of $23.66 billion in the last reported quarter, representing a year-over-year change of -3.1%. EPS of $3.51 for the same period versus $3.21 a year ago.
Compared to the Zacks consensus estimate of $23.73 billion, reported revenue is a surprise -0.31%. Surprise EPS was +8.33%.
The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus revenue estimates three times during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Lowe’s is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see values for some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about Lowe’s. However, its Zacks No. 2 ranking suggests it could outperform the broader market in the near term.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.