Lowe’s Companies Inc. (LOW), a home improvement retailer, recently posted first-quarter 2011 results.
Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
Lowe’s recently posted lower-than-expected first-quarter 2011 results on both top and bottom lines, reflecting sluggish economic recovery and difficult comparison on account of government stimulus programs that benefited the prior-year quarter.
The quarterly earnings of 34 cents a share missed the Zacks Consensus Estimate of 36 cents and remained flat compared with the prior-year quarter. The quarterly earnings lies at the low end of the company’s guidance range of 34 cents to 38 cents a share.
Lowe’s hinted that net sales for the quarter dropped 1.6% to $12,185 million from the year-ago quarter, and also fell short of the Zacks Consensus Estimate of $12,515 million.
(Read our full coverage on this earnings report: Lowe’s Misses on Both Lines)
Agreement of Estimate Revisions
Clearly, a negative sentiment is palpable among analysts, following the earnings release. In the last 7 days, 10 out of the 22 analysts covering the stock decreased their estimates while one increased the estimates for the second quarter of 2011. For third-quarter 2011, 13 analysts revised their estimates in the downward direction, while none of the analysts raised their estimates in the last 7 days.
Of the total analysts, 15 analysts have decreased their estimates in the last 7 days while none of them raised the estimates for fiscal 2011. For fiscal 2012, 12 analysts have decreased their estimates in the last 7 days while none of them raised their projection. The correction in the Zacks Consensus Estimate reflects analysts tweaking their estimates to better align with management’s new guidance range.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 went down by 4 cents to $1.65, and for fiscal 2012, the Estimate went down by 5 cents to $1.92.
For the second-quarter and third-quarter 2011, the Zacks Consensus Estimate inched down by a penny to 67 cents and 36 cents, respectively.
The current Zacks Consensus for second-quarter 2011 is pegged from a low of 65 cents to a high of 70 cents. For fiscal 2011, the estimates range from $1.60 to $1.70.
Our Take
Being the world’s second largest home improvement retailer, Lowe’s boasts of a proven strategy of investing in stores to enhance customer-shopping experience by improving point-of-sale and directional signage, and adding more product selection. The company’s sustained focus on Everyday Low Prices, New Lower Price, Go Local and Specialty Sales initiatives, have helped it to grow its market share.
We appreciate the company’s rational approach of cutting new store growth targets, given the sluggish consumer environment and the trends in the housing market. Lowe’s opened 42 stores in 2010, significantly down from 62 stores opened in 2009 and 115 stores opened in 2008. The company now expects to open 25 new stores during fiscal 2011.
However, heavy job losses and reduced access to credit have led to a sharp fall in consumer discretionary spending on big-ticket items. Although the economy is showing signs of revival, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer-spending rebounds.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Lowe’s, which competes with The Home Depot Inc. (HD) holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
HOME DEPOT (HD): Free Stock Analysis Report
Be the first to comment