Lowe’s Companies Inc. (LOW), the world's second largest home improvement retailer, in its attempt to optimize its shareholders’ return, recently announced a new share repurchase program.
The newly announced program, which has no set time limit, authorizes the company to buy back up to $5 billion shares of its common stock. However, the company added that it expects to buyback the shares in the coming two to three years through open market or private transactions.
Further, Lowe’s added that the new program can be suspended, halted or can recommence any time.
Lowe’s recently posted soft second-quarter 2011 results and trimmed its fiscal 2011 projection. Net sales for the quarter crept up 1.3% to $14,543 million from $14,361 million delivered in the year-ago quarter.
Lowe’s now expects third-quarter earnings between 30 cents and 33 cents per share. However, management slashed its fiscal 2011 earnings outlook between $1.48 and $1.54 per share compared with $1.56 to $1.64 forecasted earlier. This revision was the result of soft sales results and sluggish economic recovery.
The announcement was thus predictable as a share buyback raises shareholders’ returns and lifts the market value of the stock. Additionally, Lowe’s also announced a quarterly cash dividend of 14 cents a share, payable on November 2, 2011, to shareholders of record as of October 19, 2011.
Heavy job losses and reduced access to credit have led to a sharp drop 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.
However, Lowe’s is rationalizing its capital expenditures to improve its return on investment. We also appreciate its approach of cutting new store growth targets in the current consumer environment. Moreover, the company recently announced the closure of seven underperforming stores.
Moreover, 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 the Everyday Low Prices, New Lower Price, Go Local and Specialty Sales initiatives have helped it to grow its market share.
Currently, we have a long-term Neutral rating on the stock. Moreover, Lowe’s, which faces stiff competition from The Home Depot Inc. (HD) holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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