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Lowe's Is Helped by Hurricane Sandy, While Market Valuations Remain Rich
Posted by: earningsyield (IP Logged)
Date: February 25, 2013 04:30PM

U.S. equity markets look to continue Friday’s rally despite higher oil prices and relatively rich market valuations. At current levels, the market is trading at a Shiller P/E of 22.7 versus a historical mean of 16.5 with earnings season continue throughout the week and M&A activity picking up in the last month.

Earnings

Shares of home improvement retailer Lowes (LOW) are mixed after its latest quarterly results beat analyst expectations. Lowe's reported fourth quarter profit of $0.26 versus analysts expectations of $0.23. Its results were helped by rebuilding after Hurricane Sandy and ongoing efforts to improve product selection and customer service. It now expects EPS of $2.05 for the current fiscal year on revenue of $50.52 billion.

At current levels, Lowe's trades at an 18 multiple and may be the reason some Gurus have been selling out or reducing their positions. Gurus who have recently reduced their position in the home improvement retailer include:
Lowe’s main rival, the Home Depot (HD), is expected to report results tomorrow.

Shares of car rental company Hertz (HTZ) are up more than 8% after it reported quarterly results following its acquisition of Dollar Thrifty. Excluding items, Hertz earned $0.33 per share in the quarter but also had a bullish forecast. The company now forecasts adjusted earnings between $1.82 to $1.92 on revenue of $10.85 to 10.95 billion. Analysts were expecting adjusted EPS of $1.78 on revenue of $10.79

Not much activity from Gurus in the car rental company with PRIMECAP Management being the sole buyer lately, but the impact of the purchase is insignificant.

Finally, keep an eye on shares of J.C. Penney (JCP) leading up to Wednesday when it reports fourth quarter results. I know its turnaround is suppose to take years and early figures indicate the shops are working. But the WSJ is reporting more board dissatisfaction with Vornado’s Steven Roth expressing disappointment in sales figures as his investment continues to be a big loser. If sales figures continue to disappoint, the pressure might start to build on CEO Ron Johnson. The market is pricing in a great sales figure as JCP’s shares are up 17% in the past month.

Gurus who have recently bought or added to J.C. Penney include:

Disclosure: None



Guru Discussed: David Dreman: Current Portfolio, Stock Picks
Lou Simpson: Current Portfolio, Stock Picks
Stocks Discussed: LOW, HD, HTZ, JCP,
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