Lowe’s Stock Forecast: Is the Home Improvement Giant a Buy?

Lowes Stock Forecast: With over 2,000 stores and 300,000 employees, Lowe’s is an overwhelming retail force in the home improvement industry. Since 1961, the company has also traded publicly on the New York Stock Exchange under the ticker symbol LOW.

For investors looking for retail exposure to home improvement and construction, Lowe’s [NYSE: LOW] is one of the obvious first choices. As with any stock, though, it’s important to carefully evaluate the company, its market and its fundamentals before making a decision to buy.

Here’s what you need to know about Lowe’s and whether it is a wise investment at the moment.

The Lowe’s Business Model

Before looking at the merits of its stock, it’s first important to understand the basic business model behind Lowe’s.

The company provides a general selection of home improvement and design materials for both individual homeowners and contractors.

Products sold by Lowe’s range from lumber and drywall to flooring and home decor goods. As part of its product offerings, Lowe’s owns a variety of private label brands including Kobalt, Garden Treasures, Utilitech and Blue Hawk.

In addition to supplying materials for home improvement projects, Lowe’s also offers customers installation services as a means of capturing more value from large sales.

Installation services are offered on such products as flooring, appliances and kitchen counters and cabinets. Installations are outsourced by in-store staff to outside contractors, allowing Lowe’s to offer these services without maintaining a proprietary team of trained installers.

The Argument for Investing in Home Improvement Stocks

Though not as glamorous as pharmaceutical or tech stocks, there’s a lot to be said for investing in home improvement stocks such as Lowe’s [NYSE: LOW].

At present, Americans spend about $340 billion each year on home improvement projects, and that figure is projected to grow through at least 2021.

In addition, the large, heavy goods and materials typically sold by home improvement stores are poorly suited to the Ecommerce business model.

As a result, home improvement is one of the few elements of the retail sector that is unlikely to face significant pressure from the shift toward online buying.

The Positive Side of Lowe’s Stock

Building on top of the advantages of home improvement stocks in general, Lowe’s offers a few specific advantages as an investment.

The company’s share price history over the past five years has been remarkably positive, with an approximate increase in value of 115 percent.

Earnings per share rose at a more modest 5.4 percent compounded annual rate over the same period but remained on a consistently upward trend.

Another positive of Lowe’s [NYSE: LOW] is its dividend history. Lowe’s is typically classed as one of the most historically reliable dividend paying stocks, sharing its prominence as a dividend leader with the likes of Johnson & Johnson.

In the last five years alone, the company has raised its quarterly payout per share from $0.18 to $0.55, an approximately threefold increase.

Adding to Lowe’s [NYSE: LOW] recent history of share price and dividend growth is the potential for further increases as the result of a course correction in company strategy by recently installed CEO Marvin Ellison.

After taking over his position from former CEO Robert Niblock, Ellison announced a return to retail basics and a shift in focus away from the global and tech-heavy approach of his predecessor.

Though less innovative, this more fundamental-oriented strategy may help Lowe’s better exploit untapped portions of the domestic home improvement market and drive future growth.

Alongside this shift in retail focus, the company has also strategically closed stores that are too close to other locations, thus maximizing store efficiency while reducing real estate expenditures.

Analysts have generally favored Ellison’s approach, and the company is currently projected to average 12 percent annual growth through 2022.

Risks of Buying Lowe’s

Despite its prominent strengths, there are also some potential downsides to keep in mind if you are considering investing in Lowe’s [NYSE: LOW].

One of the least promising aspects of the company is its current rate of revenue growth relative to competitive retailers. For the first quarter of 2019, Lowe’s posted an anemic revenue growth of just 2.2 percent.

Home Depot, the company’s primary competitor and the largest retailer in the home improvement industry, significantly outperformed Lowe’s by posting a revenue growth of 5.7 percent in the same quarter.

It should be noted, however, that Lowe’s outperformed Home Depot in same store sales growth by posting a 3.5 percent SSSG to Home Depot’s 2.5 percent.

Lowe’s may also be at risk of price increases for its private label products due to the ongoing application of tariffs on Chinese goods.

Because of supply chain exposure in China, the cost of these key products could increase, forcing the company to pass on higher costs to the customer or accept lower profit margins.

Lowe’s Stock Forecast: Is It A Buy?

While you should always consider your own investment strategy and risk tolerance when deciding to purchase any stock, Lowe’s is an attractive opportunity for investors looking to take advantage of the booming home improvement market.

Shares of Lowe’s are particularly suitable for dividend growth investors due to the company’s longstanding history of raising its dividend payouts, but the share price history and potential offered by a return to retail fundamentals also make it worthy of consideration by investors seeking share appreciation.

Slow revenue growth and trade conditions may present the company with near-term headwinds, but the overall outlook for Lowe’s appears positive.