Why Lowe’s Earnings Won’t Invigorate Investors

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Lowe’s Companies Inc. (NYSE: LOW) reported third-quarter 2017 results before markets opened Tuesday morning. The home improvement retailer posted diluted earnings per share (EPS) of $1.05 and $16.8 billion in revenues. In the same period a year ago, Lowe’s reported EPS of $0.43 on revenue of $15.7 billion. Third-quarter results compare to consensus estimates for EPS of $1.03 and $16.59 billion in revenue.

Same-store sales increased 5.7% in the quarter and rose 5.1% for U.S. stores. Net income rose 20.8% in the quarter to $2.9 billion. Lowe’s reported no adjustments to income in the quarter.

In its guidance, the company pegged full-year 2017 sales to rise about 5% year over year, unchanged from the second-quarter estimate. Same-store sales are expected to increase 3.5% as well. Diluted earnings per share continue to be forecast in a range of $4.20 to $4.30. The consensus analysts’ estimate for EPS is currently $4.50 and the revenue estimate is $68.4 billion. The revenue estimate reflects an increase of 5.2% year-over-year.

The company also maintained its estimate of operating margin in a range of 80 to 100 basis points.

Lowe’s CEO, Robert Niblock, said:

During the third quarter, we drove traffic in-store and online with compelling messaging and integrated customer experiences. We continue to invest in omni-channel capabilities to enhance value for customers and shareholders.

The company also said it repurchased stock valued at $500 million and paid $344 million in dividends during the quarter. For the year to date, buybacks total $3 billion and dividend payments total $947 million.

The company’s full-year guidance is essentially the same as last quarter’s and the earnings and revenue beats were slim. Maybe there’s a surprise coming during the conference call, but if not, Lowe’s third quarter was generally no better than expected and that is not what investors have been rewarding with higher share prices.

Shares of Lowe’s closed up about 1.6% on Monday, at $81.46, in a 52-week range of $69.70 to $86.25. The stock traded down down about 0.5% in Tuesday’s premarket session at $81.10. The consensus 12-month price target was $85.68 before today’s results were announced. The highest price target is $100.00.