Lowe's Prospects, Hammered by Home Depot and Others, Aren't Coming Back

Lowe’s Companies Inc. (NYSE: LOW) may be among the largest home improvement retailers in America, often ranked just behind Home Depot Inc. (NYSE: HD). New CEO Marvin Ellison, who helped wreck J.C. Penney Co. Inc. (NYSE: JCP), faces an uphill battle Lowe’s cannot win.

The stock market has voted on Lowe’s prospects, although there are several other signs of its struggles. Lowe’s shares are up only 7% in the past two years, compared to Home Depot at 40% and the S&P 500 at 30%.

The primary problem with Lowe’s is that it is no longer growing. The company posted fourth-quarter results:

Sales for the fourth quarter were $15.5 billion compared to $15.8 billion in the fourth quarter of 2016, and comparable sales increased 4.1 percent. For the fiscal year, sales were $68.6 billion compared to $65.0 billion in fiscal 2016, and comparable sales increased 4.0 percent. Comparable sales for the U.S. home improvement business increased 3.7 percent for the fourth quarter and 3.9 percent for the fiscal year.

That is only some of its problems, which are topped by the fact that too many things Lowe’s sells can be bought elsewhere, from Walmart Inc. (NYSE: WMT) to Costco Wholesale Corp. (NASDAQ: COST), but predominantly Home Depot. Lowe’s has no path to differentiation. That leaves what it charges customers as the key to its success. Cutting prices is usually not a winning strategy for a public company, though.

Lowe’s stocks standard hardware and accessories for kitchens to bathrooms and bedrooms to appliances. While Walmart does not have all of these, its home improvement centers have many. This is certainly true for many items people would use for home renovation. Costco has an equally large home improvement center. While it may not have everything Lowe’s does, it has a large enough inventory to successfully compete with many sections of Lowe’s.

Online, Inc. (NASDAQ: AMZN) sells many items that Lowe’s does, which is a singular problem as more shopping moves to e-commerce.

Lowe’s competition is not just big-box retailers and online sales. There are also local hardware stores and chains, particularly Ace Hardware, which has nearly 5,000 locations.

Competition surrounds Lowe’s. It has not shown it can solve that problem. And the competition is too large and too tough for that to change.

Shares of Lowe’s were last seen trading at $85.75, in a 52-week trading range of $70.76 to $108.98. The stock does have a consensus analyst price target of $105.38.