Why Is Lowe's (LOW) Up 4% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Lowe's Companies, Inc. (NYSE:LOW) . Shares have added about 4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is LOW due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lowe's Q1 Earnings Miss Estimates, Sales Improve Y/Y

Lowe’s reported first-quarter fiscal 2018 results, with earnings and sales lagging the Zacks Consensus Estimate. This marks the company’s second consecutive bottom-line miss. Nevertheless, the company’s top and bottom line depicted year-over-year improvement in the quarterly results.

In the first quarter, unfavorable weather conditions in several regions led to delayed spring season sales, which dented the company’s outdoor categories performance. Nonetheless, the company benefited from solid indoor category performance and consistent sales growth to Pro customers.

Q1 Performance

Notably, this home improvement retailer’s quarterly earnings of $1.19 per share, fell short of the Zacks Consensus Estimate of $1.22 cents. Nevertheless, the bottom line increased 15.5% from $1.03 in the year-ago quarter, following a decline of 14% in the fourth quarter of fiscal 2017.

Further, net sales of $17.36 billion missed the Zacks Consensus Estimate of $17.44 billion. Nevertheless, the top line rose 3% year over year after posting improvement of 1.8%, 6.5%, 6.8% and 10.7% in the fourth, third, second and first quarters of fiscal 2017, respectively.

Comparable sales (comps) inched up 0.6% in the quarter under review, following an increase of 4.1%, 5.7%, 4.5% and 1.9% in the fourth, third, second and first quarters of fiscal 2017, respectively. Comps for the U.S. business climbed 0.5% after increasing 4.7%, 5.1%, 4.6% and 2% in the preceding quarters, respectively.

Moving on, gross profit increased 3.7% year over year to $6,012 million and gross profit margin expanded roughly 23 bps to 34.6%. However, operating income declined close to 6% during the quarter, thanks to higher SG&A expenses.

Other Financial Aspects

Lowe’s, which competes with The Home Depot (NYSE:HD), Inc., ended the quarter with cash and cash equivalents of $1,565 million, long-term debt (excluding current maturities) of $14,948 million and shareholders’ equity of $5,745 million. Cash flow from operations amounted to $3,429 million in the quarter under review.

In the reported quarter, the company kept its promise of returning surplus cash to stockholders as it repurchased shares worth $750 million and distributed $340 million as dividends.

Outlook

The company is on track with efforts to improve inventory levels, conversion rates, gross margin along with strategies to enhance consumers’ experience.

That said, for fiscal 2018, management projects total sales growth of approximately 5%, up from the prior estimate of a rise of 4%. The top line is expected to gain 1% from the company’s adoption of new revenue recognition accounting standard. Further, comps for fiscal 2018 are expected to rise about 3.5%.

Additionally, Lowe’s envisions operating margin to decline approximately 40 bps in the fiscal. Earnings are anticipated in the band of $5.40-$5.50. The Zacks Consensus Estimate for fiscal 2018 earnings is currently pegged at $5.46, which falls within management’s expectations.

Moreover, the company intends to open 10 home improvement and hardware stores in fiscal 2018. As of May 4, 2018, the company operated 2,154 stores in the United States, Canada and Mexico.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been nine revisions higher for the current quarter compared to three lower.

Lowe's Companies, Inc. Price and Consensus

VGM Scores

At this time, LOW has a great Growth Score of A, though it is lagging a lot on the Momentum front with a C. However, the stock was also allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors than momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, LOW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.