The world’s second-largest home improvement retailer, Lowe’s Companies, Inc. (LOW), remains well positioned to benefit from its housing market recovery and merchandising initiatives. The stock hit a 52-week high of $68.74 yesterday, before eventually closing at $68.57 and surging roughly 41% year-to-date. This demonstrates its inherent strength. Lowe’s long-term earnings per share growth rate stands at a healthy 15.7%.
Lowe’s closure of its underperforming stores, along with its strategy of enhancing customer-shopping experience and merchandising transformation, is likely to generate incremental sales. The company is also focusing on expanding its E-commerce business and already has an online tool, MyLowes, to help consumers better manage their homes and other remodeling projects.
All these strategies have enabled the company to post better-than-expected third-quarter fiscal 2014 results. The stock’s quarterly earnings of 59 cents a share soared 25.5% from the year-ago quarter and came a penny ahead of the Zacks Consensus Estimate.
This is the second straight quarter that the company has outperformed the Zacks Consensus Estimate. On the revenue front, the company saw its top line increase 5.6% to $13,681 million that also beat the Zacks Consensus Estimate of $13,546 million.
Moreover, Lowe’s is actively managing its capital. The company is rationalizing its capital expenditures, including store-remerchandising efforts, to improve its return on investment. As a result, Lowe’s expects to generate substantial cash flow in the future. For fiscal 2014, management anticipates cash flow from operations of approximately $4.2 billion and capital expenditures of about $1 billion, resulting in free cash flow of around $3.2 billion.
Management now expects sales to register year-over-year growth of 4.5% to 5% in fiscal 2014, while comparable-store sales are anticipated to rise in the 3.5% to 4% range. Further, Lowe’s now projects earnings of $2.68 per share for the fiscal year.
Lowe’s currently carries a Zacks Rank #2 (Buy).
Other Stocks That Warrant a Look
Other favorably ranked stocks worth considering in the retail sector include Restoration Hardware Holdings, Inc. (RH), Kirkland's Inc. (KIRK) and Williams-Sonoma Inc. (WSM), all carrying a Zacks Rank #2.
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