Lowe's Positive Q4 Performance May Trigger Potential Rebound: Analyst

J.P. Morgan analyst Christopher Horvers reiterated an Overweight rating on the shares of Lowe’s Companies Inc LOW after the company reported better-than-expected fourth-quarter earnings.

Lowe’s reported a 5% earnings per share (EPS) beat, delivering $1.93 compared to the $1.84 consensus from Consensus Metrix.

This was driven by better-than-expected comparable sales (+0.2%), surpassing the analyst’s forecast of a -0.4% decline and down 50-100 basis points from buyside expectations.

The comp performance was supported by high single-digit growth in professional and online sales, strong holiday results, and hurricane recovery efforts, though these were partially offset by ongoing short-term DIY headwinds.

On the margin side, gross margin met both Street and JPMorgan estimates at 32.9%. Operating margin was slightly below consensus at 9.4%. This compares to the company’s implied guidance of a -2% comp, 9.6% operating margin, and $1.80 EPS for fourth-quarter 2024.

EPS grew by 9% year-over-year, marking the first increase since first quarter 2023 and the first positive comp since third-quarter of 2022.

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Lowe’s projects comparable sales to be flat to +1%. Total sales range from $83.5 billion to $84.5 billion, operating margin between 12.3% and 12.4%, and earnings per share (EPS) between $12.15 and $12.40 for FY25.

In comparison, the Street expects a +1.1% comp, $84.5 billion in total sales, a 12.5% operating margin, and EPS of $12.47.

Overall, Lowe’s results exceeded expectations, with comparable sales outperforming both the analyst’s raised forecast and the Street's estimates.

The gap in the analyst’s Street-high EPS projection was mainly due to incentive compensation, while gross margin was solidly in line, showing a 50 basis point year-over-year increase.

The guidance was slightly below the moderate scenario from its December Analyst Day, which the analyst interprets as a signal to keep expectations steady, following similar reductions by Home Depot Inc HD and Walmart Inc WMT.

Considering the early stage of the year and the potential slow start to first-quarter due to weather, the analyst expects LOW to regain some of its recently lost momentum.

With positive guidance in place, the analyst foresees the stock heading back to $260 (~21x the high end of the range), though the near-term rebound in comps will be the key factor in this recovery.

Price Action: LOW shares are trading higher by 3.74% at $251.46 at last check Wednesday.

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