Lowe's Q3 Earnings Preview: Analysts Examine Economic Trends, Home Improvement Market Dynamics

Lowe’s Companies Inc LOW, will be reporting its third-quarter earnings on Tuesday, Nov. 21 before the market open.

Its peer in the home improvement space, The Home Depot Inc HD, recently beat estimates while trimming FY23 expectations. HD shares were trading higher by 6.12% on the news.

Related: Analysts Adjust Home Depot’s Estimates, Trim Price Targets Posts Q3 Results: Details

Analysts’ commentary on Home Depot’s Q3 earnings gives a good idea about the expectations for the home improvement space.

Business & Fundamentals: Overall consumer appetite for home improvements, repair or remodeling has been softening.

In the short run, softness in consumers spending could impact Lowe’s. The company’s revenue structure, where DIY (Do-It-Yourself) and DIFM (Do-It-For-Me) expenditures currently make up 75% of the sales mix, becomes negatively impacted when there’s a decrease in postponed spending.

Earnings reports of Home Depot and Lowe’s serve as a mini barometer of the health of the U.S. economy.

Q3 Analysts' Focus: Analyst will be eager to hear the details of management expectations for the full year. Will Lowe’s management also have to trim their year-end expectations in the light of macroeconomic readings?

While macroeconomic variables such as inflation and interest rates remain a key risk, analysts see certain catalysts supporting the space as well.

Goldman Sachs analyst sees potential tailwinds in the recent housing price appreciation, aging housing stock, housing shortage, etc., in the near and long term for the home improvement space.

An Oppenheimer analyst sees moderating rates and waning pandemic-related disruptions as likely catalysts for the home improvement space.

For Lowe’s specifically, a RBC Capital Markets analyst sees the company’s under-penetration in its Pro business as a share gain/margin opportunity in the long term. After all, that side of Lowe’s business is more resilient owing to a safety net with maintenance/repair projects.

However, all of this remains dependent on rising consumer appetite for home improvement.

Ratings & Consensus Estimates: Consensus analyst estimates for Lowe’s stock stands at a Buy, with a price target of $224.50 a share.

LOW Price Action: Lowe’s stock was up 0.70% to $203.70 on Friday.

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