Lowe's to Benefit from Housing Recovery, Hits 52-Week High - Analyst Blog

Lowe's Companies, Inc. (LOW), one of the world's largest home improvement retailers, remains well positioned to benefit from its housing market recovery and merchandising initiatives. The stock hit a 52-week high of $67.87 yesterday, before eventually closing at $67.84, up 1.4% from the previous day's session. This Zacks Rank #2 (Buy) stock has surged roughly 40% year-to-date, and is likely to continue its momentum.

The company aims at generating incremental sales through closure of underperforming stores, enhancement of customers' shopping experience and merchandising transformation. The company is also focusing on expanding its e-commerce business and already has an online tool, “MyLowes”, to aid consumers better manage their homes and other home remodeling projects.

The company is rationalizing its capital expenditures, including store-remerchandising efforts, to improve its return on investment. In a recent meet, management highlighted that it expects a return on invested capital of approximately 19% by 2017. For fiscal 2014, management anticipates cash flows from operations of approximately $4.2 billion and capital expenditures of about $1 billion, resulting in free cash flow of around $3.2 billion.

Driven by increased spending on home improvement, especially remodeling and big ticket items, Lowe's posted strong results for the third quarter of fiscal 2014, wherein both top and bottom lines surpassed the Zacks Consensus Estimate.

The company's earnings of 59 cents a share rose 25.5% from the year-ago quarter, and came a penny ahead of the Zacks Consensus Estimate. This is the second consecutive quarter that the company has outperformed the Zacks Consensus Estimate. Total revenue of $13,681 million, increased 5.6%, and also came ahead of the Zacks Consensus Estimate of $13,546 million.

Management now expects sales to register year-over-year growth of 4.5% to 5%, while comparable-store sales are anticipated to rise in the 3.5% to 4% range for fiscal 2014. Lowe's projects full-year earnings to come in at $2.68 per share.

Apart from Lowe's, Church & Dwight Co. Inc. (CHD), Colgate-Palmolive Co. (CL) and The Kroger Co. (KR) also hit 52-week highs of $79.05, $70.49 and $64.67, respectively, yesterday.