Will Lowe's Nail Q4 Comps Or Get Hammered By Top-Line Uncertainty?

Alan Rifkin of BTIG expects Lowe's Companies, Inc. LOW to report fourth-quarter EPS of $0.77, a penny below Street estimate of $0.78.

Analyst's Expectations

The home improvement retailer will announce its fourth-quarter results on March 1. Rifkin, who estimates a quarterly comp of 3 percent versus 5.2 percent last year, anticipates the additional week will add $0.06–$0.07 to EPS.

Rifkin sees fourth-quarter revenue to grow 16.8 percent to $15.5 billion and expects RONA to contribute an additional 6 percent revenue growth.

“We expect continued outperformance in Pro and big ticket and estimate Pro comps of 5–7 percent and big ticket comps of 4–6 percent (vs. 6.6 percent last year). Based on our store checks, we believe appliances, lawn & garden and tools were stronger categories in 4Q while kitchen and paint were relatively softer,” Rifkin wrote in a note.

Related Link: Large Supplier Checks Have Favorable Read Through For Home Depot, Lowe's

Print Focus: Top Line Commentary

Investors will focus on company’s commentary on top-line uncertainly, driven by volatile interest rate and government policy backdrop. That said, Lowe’s recent reduction of 2,400 positions to cut costs should benefit margins.

“While we estimate LOW’s direct import exposure is just 15 percent, LOW’s indirect import exposure has not been disclosed and could expose LOW to additional cost inflation under a border tax adjustment,” Rifkin highlighted.

Further, the analyst sees management reiterating its December comments that it expects solid housing turnover, but lower rates of home price appreciation compared to the 6.2 percent annual rate over 2014-2016.

BTIG's Conclusion

Rifkins, who rates Lowe's shares at Buy with a price target of $80, projects Lowe’s to provide 2017 EPS guidance that will bracket his $4.45 estimate. In addition, he anticipates guidance of 3–3.5 percent comps, flat gross margin, and about 50 bp of EBIT margin gain.

Shares of Lowe’s closed Tuesday’s regular trading at $77.25.