Lowe's (LOW) Down 18.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Lowe's (LOW). Shares have lost about 18.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lowe's due for a breakout? 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 Q4 Earnings Beat Estimates, Revenues Miss

Lowe’s came up with fourth-quarter fiscal 2019 results, which marks the third straight quarter of an earnings beat but the second consecutive revenue miss. The company provided disappointing earnings forecast for fiscal 2020.

Q4 in Detail

Adjusted earnings of 94 cents a share exceeded the Zacks Consensus Estimate of 91 cents and increased 17.5% year over year. Better process execution, cost containment efforts and improving gross margin contributed to the bottom line.

Net sales of $16.03 billion grew 2.4% year over year but fell short of the Zacks Consensus Estimate of $16.15 billion. Notably, comparable sales increased 2.5% during the quarter under review. Again, comparable sales for the U.S. home improvement business rose 2.6% in the quarter, following an increase of 3% in the preceding quarter.

Lowe’s is impressed with its U.S. home improvement stores’ performance. This was backed by investments in technology and strength in the Pro business. Also, the company remains on track to enhance e-commerce platform and accelerate Lowes.com sales. Management highlighted that the company remains well positioned to capitalize on sturdy demand in a home improvement market.

Gross profit grew 1.7% year over year to $4,981 million, while gross margin contracted 22 basis points to 31.1%.

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $716 million, long-term debt (excluding current maturities) of $16,768 million and shareholders’ equity of $1,972 million.

The company generated cash flow from operations of $4,296 million in the 12 months ended Jan 31, 2020. In the reported quarter, Lowe’s repurchased shares worth $670 million and distributed $423 million as dividends.

The company ended the quarter with 1,977 home improvement and hardware stores across the United States and Canada.

Outlook

Management envisions total sales growth of about 2.5-3% for fiscal 2020. This suggests total sales between $73.95 billion and $74.31 billion for the fiscal year.

Lowe’s anticipates comparable sales growth of roughly 3-3.5%. Additionally, management forecast adjusted operating income growth of approximately 8-12% with adjusted operating margin expected to expand 50-70 basis points in fiscal 2020.

Management envisions adjusted earnings between $6.45 and $6.65 per share for the fiscal year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.16% due to these changes.

VGM Scores

At this time, Lowe's has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.