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

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.

Tailwinds

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.

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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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