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Following A Soft Q2 From Lowe's, Argus Adjusts FY17 Forecast

Following A Soft Q2 From Lowe's, Argus Adjusts FY17 Forecast

Despite a weaker-than-expected second-quarter earnings print, Christopher Graja of Argus Research maintains a Buy rating on Lowe's Companies, Inc. (NYSE: LOW) with an unchanged $90 price target.

Lowe's reported that it earned $1.37 per share in the quarter, which was "well below" Graja's estimate of $1.44. Comparable sales also rose just 2.0 percent, which were lower than the 4.1 percent expected.


Nevertheless, Graja stated that he was "encouraged" by the merchandising initiatives seen at Lowe's stores, and he has a "growing conviction" that Lowe's could boost its comparable-sales growth and "slightly" increase gross margins with its private label brand, better merchandising, improved collaboration with suppliers and strategic use of its supply chain.

Related Link: Technical Alert: Lowe's Nears Post-Brexit Low After Q2 Miss

Graja added that these tailwinds will be "bolstered by gradually rising home prices," an improving job market and Lowe's management's improved execution of its business plan. In addition, the company also has a "strong record" of stock buybacks and dividend increases.

"We are optimistic that Lowe's can improve return on capital by growing sales faster than assets and profits faster than sales," the analyst wrote. "We expect the company to increase both sales per square foot and EBIT margin."

Despite Graja's optimistic outlook, he did make some changes to his full-year fiscal 2017 estimates. The analyst lowered his earnings per share outlook for the full year to $4.00 from $4.05 to reflect the lower than expected earnings per share print in the second quarter. He did however note that the revised estimate still assumes around 23 percent year-over-year growth for the full year.

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Latest Ratings for LOW

Jul 2019Initiates Coverage OnBuy
Jun 2019MaintainsEqual-Weight
May 2019MaintainsNeutral

View More Analyst Ratings for LOW
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