Can Lowe’s replicate its competitor’s success?

Lowe’s will announce its third-quarter figures on Wednesday 19 November.

A Lowe's branch
Source: Bloomberg

Lowe's share price has made a fast recovery since the dip in October which was brought about by a wider selloff. The stock has been gaining momentum since the home improvements company reported better-than-expected second-quarter results in August. The latest announcement showed investors that second-quarter sales came in slightly ahead of estimates at $16.59 billion.

The EPS figure of $1.04 caught traders attention, as the market was anticipating a reading of $1.02. Even though the retailer lowered its full-year sales forecast from 5% growth to 4.5%, traders remained optimistic; the harsh weather at the beginning of the year was blamed for the lowering of the full-year guidance. The markets are unlikely to forgive the firm for lowering its forecast again, and traders will be paying close attention to the outlook as the year end draws nearer.

The recovery in the US housing market has assisted Lowe’s business, and rising house prices along with additional developments have encouraged home owners to go out and do renovations.

Today, Home Depot reported a 5.4% increase in third-quarter sales to $20.52 billion. The largest home improvements chain in the world also reiterated its full-year sales outlook.

Equity analysts are very bullish on Lowe’s. Out of the 30 recommendations, 16 are buys, 12 are holds and only two are sells; the average target price is $57.14, which is slightly lower than the current price. It is impressive to have 53% of all the recommendations as buy ratings, but analysts are even more bullish on Home Depot with 58% percent of its recommendations as buys. Adding to that, the average target price is $100, which is a marginally higher than the current price.

Traders are expecting third-quarter revenue of $13.43 billion and EPS of $0.58, compared with last year’s figures of $12.96 billion and $0.47. The company will release its full-year figures in February 2015, with the consensus for revenue of $55.78 and EPS of $2.62 respectively.

Year to date, the share price is up 19.3%, and it has outperformed its larger rival Home Depot who’s share price is up 18% over the same period. Both stocks outstripped the S&P 500 which is up 12% in the same period.

The number of short positions being taken out on Lowe’s has fallen to its lowest level since May. Its share price recently hit an all-time high, and is resting on the 50-hour MA of $58.30. The next support level down is $57. The record high of $59.15 is the initial target, and if that is breeched then $60 will be in focus.

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