Can Lowe's Q3 Be A Promising One?

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Nov 19, 2014

While chief home improvement retailer cum rival Home Depot (HD, Financial) reports its third quarter numbers on Tuesday, Lowe's (LOW, Financial) would be declaring the Q3 numbers on Wednesday before the market opens. Speculating analysts are expecting a raise in its top and bottom lines and the U.S. housing market revival should remain the major driving force in this particular matter. However, online players like Amazon (AMZN, Financial) continue to compete with conventional players such as Lowe's which might have taken a toll on the revenue earned for the quarter. As of now, let’s peek into what is in the air with respect to the third quarter of Lowe and whether the numbers being estimated sound reasonable enough to be reached.

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The analysts’ piece of mind

As the longer term improvement in housing stands to benefit Lowe’s earnings for the quarter, analysts contemplate that the company would earn around $0.58 per share from $0.47 a share earnings in the similar quarter of last year. Revenue is also being estimated to rise to nearly $13.5 billion from nearly $13 billion in the third quarter last year.

Data provider CoreLogic (CLGX, Financial) has indicated that a measure of U.S. home prices rising only slightly in September from August, a sign that prices are leveling off after large gains earlier this year. Analysts are also eagerly awaiting the update on the recent acquisition of Orchard Supply Hardware Stores that cost $205 million and got completed during the quarter.

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It has been heard that the Lowe's group has been returning to offering permanent cheaper prices on many items, instead of fleeting discounts. So, maybe the Q3 results will give a clear picture to the U.S. residents about the economy and the housing market.

For the fiscal year, analysts are anticipating earnings of $2.62 a share and revenue of $55.78 billion. In each of the past three quarters the company has shown improvement in revenue that rose by a whopping 28% in the second quarter of the fiscal year. Also net income improved manifold in the second quarter. As the housing market has improved down the road, the third quarter numbers being predicted by Wall Street do look pretty achievable by the home improvement retail honcho.

Company has kept the optimistic tone intact

The company has set the goal of 65 basis points of Operating margin through both gross margin and expense leverage, and has already achieved 67 basis points through the first half of the year- something that is commendable for Lowe. In the 2nd quarter conference call, Lowe’s management had indicated that the sales outlook was a bit low as a result of year-to-date performance. Despite a weak sales outlook, the company has maintained its full year earnings guidance which it expects to reach through expense management.

The company has recently hit the 52 week high of $58.76. The home improvement sector’s quick revival should be apparent through the numbers posted in the quarter as rising U.S. home ownership and favourable demographic data points to the upside for refurbishment spending. Also, the latest Census bureau has estimated that about 69% of the homes in the U.S. are more than 25 years old.

Final note

The company’s top brass as well as analysts following the stock movement remain upbeat on the results that are to be released on November 19. Let’s focus on the actual results posted by the company and find out if it’s meeting the analyst and investor expectations in the long run.