Will Lowe's (LOW) Post a Surprise this Earnings Season?

Lowe's Companies Inc. LOW, home furnishings retailer, is slated to report its second-quarter 2014 earnings on Aug 20, 2014. In the previous quarter, the company delivered a negative earnings surprise of 4.92%. Let's see how things are shaping up for this announcement.       

Factors Influencing this Quarter

Lowe's first-quarter results were positively impacted by effective marketing, staffing and inventory management. However, these were more than offset by severe winter weather conditions, which hampered its outdoor categories business. Per analysts, the company's top and bottom lines are likely to benefit from the improvement in home prices this quarter. However, it is likely to face stiff competition from The Home Depot, Inc. HD, which is strongly tapping online sales.

Earnings Whispers

Our proven model does not conclusively show that Lowe's is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +0.98%. This is because the Most Accurate estimate of $1.03 per share is above the Zacks Consensus Estimate of $1.02.

Zacks Rank: Lowe's Zacks Rank #4 (Sell) lowers the predictive power of ESP.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:

Abercrombie & Fitch Co. ANF, Earnings ESP of +20.00% and a Zacks Rank #2 (Buy).

Dollar Tree, Inc. DLTR, Earnings ESP of +7.69% and a Zacks Rank #3 (Hold).