The recovering housing market helped Lowe's Companies (LOW, Financial) deliver strong results once again in the recently reported third quarter. The company saw a good improvement in revenue and earnings and also outpaced consensus estimates on the top and bottom lines. As the macroeconomic conditions are also improving, Lowe's is seeing bright opportunities for better results in the future.
Investments to drive future performance
Lowe's is now focusing on various aspects to improve its profitability. It has aggressive investment plans. It is investing in various ventures which it thinks can drive its profitability in the coming days. With the growth in the housing market, Lowe's is seeing good opportunities across segments such as building and maintenance, home décor and seasonal. It is also seeing encouraging results from the North, South and West regions which are further expected to drive sales, adding more to the company’s top line.
Along with the recovering housing market, Lowe's is further encouraged by lower interest rates and declining fuel prices which are in turn contributing in improving Lowe's margins. Further due to these lower levels in the loans and interest rates the analysts are anticipating that the homeowners are more likely to invest more in their houses, giving Lowe's good opportunities to capture this situation and further improve its profitability.
Favorable conditions
Lowe's is also seeing good support from the favorable climatic conditions. With the milder summers, the company saw good sales of mowers and trimmers. Further, Lowe's is expecting the winter to be harsh. This will drive sales of snow throwers and winter products by the company. The company is expecting the seasonal changes to continue helping the company in the future as well which will help in driving sales as well as contributing well to company’s top line in future. In fact the company is confident of delivering the growing needs as it thinks to be in a good shape to meet the demand.
It has undertaken an aggressive expansion strategy which is moving in a good shape and could really help the company to grow its financials in the coming days. Under this, the company is also planning to open three new stores in Canada. With this expansion Lowe's is seeing good opportunities in Canada as well as other new market surrounding it.
Lowe's is also carrying out various initiatives to drive more customers to it. Under this it is offering a fair value for money strategy to attract more customers. Under this the company is offering vendor demonstration, special values on core pro products all over the store with introductory credit offers.
Conclusion
The stock looks reasonable with a trailing P/E of 25.06 and its forward P/E of 19.55 shows good earnings growth in the near term. While in the long term its earnings are growing with a CAGR of 17.62% which is better than the industry average of 16.12%. Also, the recovering housing market is showing positive signs for Lowe's in future. As of now, Lowe's is a good pick and the investors should definitely include it in their portfolio.
