Lowe’s Beats Q1 2024 Estimates: Time to Buy or Hold Off?

on May 21, 2024
  • Lowe's beats Q1 2024 estimates, exceeding revenue and earnings.
  • Stagnant stock performance prompts concern for investors.
  • Technical analysis suggests mean reversion strategy for medium-term traders.

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Earlier today, Lowe’s Companies Inc. (NYSE:LOW) reported its Q1 2024 earnings, exceeding analysts’ expectations for both revenue and EPS. The company achieved a non-GAAP EPS of $3.67, which was $0.71 above the estimates. Revenue reached $21.4 billion, surpassing projections by $300 million despite a 4.3% year-over-year decline.

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Comparable sales for the quarter were down 4.1%, highlighting ongoing challenges in the DIY segment. However, gains in the Pro segment and online sales provided some offset. Importantly, Lowe’s reaffirmed its full-year outlook, anticipating total sales between $84 to $85 billion and diluted EPS of approximately $12.00 to $12.30.

Lowe’s operates 1,746 stores, covering 194.9 million square feet of retail space. This makes it among the largest players in the home improvement industry. Under the leadership of CEO Marvin Ellison since 2018, the company has focused on productivity improvements and strategic initiatives.

These initiatives include the national rollout of a new DIY loyalty program and the expansion of same-day delivery options. These efforts have helped Lowe’s increase its market share and enhance operational efficiency despite the broader economic environment remaining challenging lately with high mortgage rates and reduced home sales.

The home improvement sector, particularly the DIY segment, is currently facing a slowdown due to higher interest and mortgage rates. This has led to decreased home sales and a shift in consumer spending towards services and experiences. Despite these headwinds, Lowe’s has shown resilience through its strategic initiatives and disciplined capital allocation.

Over the past many quarters, Lowe’s has continued significant share repurchases and consistent dividend payments. The company’s strong fundamentals, effective management, and historical dividend growth make it an attractive option for long-term investors. However, near-term uncertainties persist.

Given the current macroeconomic conditions and Lowe’s valuation, trading at a forward P/E above its historical average, deciding whether to buy or hold off on the stock requires careful consideration. The long-term outlook remains positive due to factors like the aging housing stock and Lowe’s strong market position.

Short-term risks from economic volatility and interest rate fluctuations are significant. While Lowe’s has a strong foundation and strategic initiatives in place, investors should consider the potential impacts of these economic headwinds. Evaluating the stock’s charts, technical indicators and trends can provide further insights into whether Lowe’s presents a buying opportunity at this time or if it’s better to hold off and wait for more favorable conditions.

Flat performance: A concern for bulls

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Following a remarkable rebound from the COVID-induced market downturn in 2020, Lowe’s stock surged, witnessing a four-fold increase from $60 to $260 by the end of 2021. However, the enthusiasm has since waned as the stock has languished within a range of $180-$260 for over two years now.

LOW chart by TradingView

It tried to break out from this range on the upside earlier in March this year, but failed and since then has fallen to $230 levels. As long as the stock doesn’t break above or below this range, neither bulls nor bears will be in control. However, traders can capitalize on mean reversion strategies in the medium term to profit from this range-bound movement.

Traders who are bearish on the stock can short it at current levels while keeping a stop loss at $264.2 and a profit target near $185. Traders who are bullish on the stock must either wait for it to give a weekly closing above $260 before initiating a long position or wait for it to again fall below $200 where they can buy it keeping a stop loss at $179.4.

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