Lowe's Companies, Inc. (LOW)

The latest existing home sales report from the National Association of Realtors showed an increase of 3.1% over the previous month with sales rising to about 5 million units a year annualized. When the last twelve months of data is plotted, there’s a clear bottoming pattern being formed. The report also shows home prices continuing to fall and the inventory of unsold homes increasing. That’s bad news for sellers but good news for buyers since the increasing inventory should continue to put pressure on prices.

The AP release listed on MSNBC.com includes this additional information, “Between 33 and 40 percent of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group.”

If existing home sales have bottomed, it should be good news for home improvement retailers Home Depot (HD) and Lowes (LOW). The high percentage of sales coming from foreclosures should also be a positive for their business. I haven’t found any data to back this up, but it’s logical that on average a foreclosed home will need more repairs than an owner-to-owner purchase. Granted, logic doesn’t necessarily apply to the stock market.

Both companies are profitable even in the current soft housing market. Valuations are similar with both companies trading at about 15.5 times the next 12 months earnings. Cramer did a head-to-head between HD and LOW on Wednesday’s Mad Money and concluded LOW was the better bargain primarily because of better growth prospects. One key difference between the companies is the dividend. HD yields about 3.3% vs about 1.4% for LOW. Obviously, Lowe’s has a much lower payout ratio so more of its earnings are available to invest in expansion.

If home sales have bottomed, LOW and HD sales traffic should start increasing, particularly with a high percentage of sales and housing inventory coming from foreclosures. Both companies should benefit from easy same-store-sales comparisons going forward. Analysts’ earnings estimates for both companies have been lowered over the past 90 days. I think that’s a mistake. Cramer based his opinion of the two stocks partly on his prediction that new home sales will start improving late next year. I suspect many analysts are also considering new home sales for their models. They may be overlooking stabilizing and improving existing home sales volume (not necessarily prices) providing a lift to home improvement centers.

I believe LOW is a slightly better buy than HD based on better growth prospects and a lower debt ratio. The higher dividend makes HD attractive to income investors and should provide more support to the share price if the thesis is wrong; the dividend is comfortably covered so there isn’t much chance of a cut. If stabilizing home sales drive an increase in traffic, both companies should benefit.

The value hound in me senses potential here. I believe the depressed housing market has had an overblown effect on the share price of this retailer, as only a portion of its revenue comes from new construction. Let's face it, if we're not moving to a new house, we'll be fixing up the old.

I think that the weakness in the housing market is going to affect this company more than people think. The housing market is not turning a corner as some experts claim. These people probably just want to take credit for guessing the bottom, with no real evidence, just hoping to be lucky. These people are all extremely early. We experienced a bull market that saw 10 years of price appreciation in only a few years in some markets. Prices have only just begun to pull back. Despite what people on here might say, spending on home improvements will decrease significantly as people feel like they are loosing money on their real estate. The hoard of real estate speculators, buying multiple houses with nothing down and upgrading everything to make a quick profit will completely dry up and that will significantly impact the bottom lines of both LOW and HD. While some people will still upgrade their homes, without the same appreciation to the values of their houses, the upgrades will slow with regular customers also.
I also would like to make a comment that many people on here will probably disagree with. I think that Home Depot has a better brand. Granted, Lowe's might have a better brand on wall street and with investors, but I think that Home Depot still has a much stronger brand with consumers. It is still the place most people think of first in this market. Also, everyone seems to agree that Lowe's has better management, and I am certainly not saying that bad management can't ruin a company and good management can't make all the difference, I just think that Home Depot's current stronger brand recognition with the consumer might help it a lot in the downturn. I am negative on both for at least a year.

Undervalued. Moreover, they have more growth potential than HD. If the housing market continues to slow, people will be making smaller home improvements instead of purchasing a new house, benefitting Lowe's.

I believe Lowe's will outperform the S&P 500 over the next several years for a couple reasons. First, it currently seems relatively cheap at around $29.00/share. The S&P 500 has an average P/E is 16.54 and P/Cash Flow of 10.84 while Lowe's has 15.13 and 9.26 respectively. I believe this discount has been a product of fear concerning the housing correction. Perhaps the sales stagnation/decrease will be realized, but I'm betting it won't be severe for Lowe's. Next, their sales have been growing around 18%, with higher earnings growth of 28%. The earnings growth outpaces the S&P 500's 3 year average of around 24% by 4%. Even if the sales stagnate some, the discrepancy between sales growth and earnings growth suggests management is effective in leveraging each dollar they obtain into increased profits. This can ease the pain some if the slump turns brutal. Last of all, this company pays a small but growing dividend. The dividend yield is a mere .68% but is growing at a rate of 37.5%. I believe they can, and will, keep this up because their payout ratio is only 6.97%. If the stock price dips and sales take a hit, they still have plenty of room to increase this dividend and Fools such as ourselves can purchase more shares at a cheaper price. This housing thing can't last forever, right?

The home improvement industry continues to go full force. Home owners are going to stay put since the price of homes is making it impractical for a lot of folks to move. Lowe's has established a firm place with it new store models that provide wider aisles. This is going to remain a long range winner.

In the sagging housing market we're in, homeowners who might have sold older homes and moved on may now be staying put and making improvements to the real estate they already own. And Lowes is so much better than Home Depot, which continues to shoot itself in the foot with crummy service and arrogant investor relations.

Go to geniusbull.blogspot.com to see article on why lowe's is a buy. Not to mention Warren Buffett just upped his stake to 7 million shares from 390,000 shares, it good when Mr. Buffett agrees with me.

Lowe's Companies, Inc. operate as one of the largest home improvement retailer in USA. The Company offers a line of products and services for home decorating, repair and remodeling and property maintenance. As of December 2006, the Company operated more than 1,300 stores in 49 states.

The US Home Improvement Market, currently at a size of $291 billion is forecasted to grow at an average annual rate of 4.9% over the next 5 years. The long-term outlook for the housing market remains favorable; however, the current slowdown could be prolonged if the interest rates and unemployment levels continue to remain at the same levels. Although Lowe’s and Home Depot dominate the home improvement market, they account for approximately 18% of the market share, having a potential to gain market share as the smaller players falter in a weaker housing market. Having been challenging for a long period of time, an increase in rebuilding efforts as a result of hurricanes, this year, has created an improved sales environment for home improvement industry.

Although the housing slowdown has adversely affected the home furnishing industry, in terms of decreasing sales and earnings, Lowe’s has managed to increase its sales and earnings consistently at an average rate of 18.2% and 23.5% respectively for the past three years due to the sheer size of its concentrated US operations and excellent knowledge about market segmentation.

For the nine months ended November 2006, Lowe's revenues increased by 16%, reflecting an increase in comparable store sales and the addition of 97 new stores, by incurring a capital expenditure of nearly $100 million out of existing cash reserves, providing new business functionality. The management team continues to be optimistic about the future of home improvement business and expects a continued growth in sales during 2007. Lowe’s remains to be a fundamentally strong growth story based on a double-digit square footage growth and an experienced management team.

Housing slowdown had a negative impact on share price. Most commercial homebuilders do not use HD or LOW. P/E of 16 is a discount to the S&P 500. Additionally, LOW is poised to increase market share by entering new markets. PEG is 1.03. Target is $35.

I expect Lowes to do better than the other companies in its industry because they will benefit from the slow down in building but the redecorating and home improvement areas will increase its profits.

Stores are significantly nicer than Home Depot, have better merchandise, and lots more room for expansion. I'll pick a Lowe's over a Home Depot any day, even if I have to make a left turn across traffic to do so.

Good company. I am a pleased customer. Stock is undervalued. Market for home improvement will grow.."baby boomers" aiming activities at projects w a financial return as opposed to shuffle board.

I just think the price of this stock has gone lower than it deserves. Certainly the housing sector beat-down has taken its toll on Lowes, but the company has a track record of 20% growth yoy, and the stock is currently trading at a P/E of under 15. They may not have the best year ever, but when housing picks up (and it will, at some point) I think the price of Lowes will race to catch up.

people generally don't remodel their houses when they can't even afford to pay the mortgage.

Don't own it,but I like that they've opened their sales pitch to women....which ,effectively,about doubles their market over HD

Lowe's has improved their customer service and experience over the past 6 months while Home Depot has dropped. A year ago I would have picked Home Depot over Lowes. I obviously spend a great deal of time in both.

Good time to jump in. I did not consider the quarter to be as bad as most people did. Continued growth. My personal best long term perfomer.

In my risk-seeking days (ie, pre-subprime blowup) I picked a bunch of homebuilders, and it looks like I lost. Lowe's is much better positioned for when the housing market rebounds than any of the builders. It has been able to gain market share on Home Depot and to maintain store productivity despite the adverse conditions in the industry. Its customer service is topnotch (whereas HD's has gone down the tubes - kind of like HP vs Dell). Although 70% of Lowe's stores are within 10 miles of a Home Depot, I think this will, for the foreseeable future, enable Lowe's to weather the competition.

Although it's smaller than HD, Lowe's has sufficient scale to give it pricing advantages and to weather downturns. Its returns on invested capital have been consistent.

And the number of households in the US will increase. That secular trend will continue to drive growth.