Lowe’s Companies, Inc. (NYSE: LOW) bounced back from a slow start to the year in the second quarter, and the stock rocketed higher by more than 9 percent. Analysts say there is still plenty of opportunity for LOW stock upside in the long term.
Lowe’s reported second-quarter adjusted earnings per share of $2.07 on revenue of $20.89 billion. Both numbers beat consensus analyst estimates of $2.02 in EPS and $20.78 billion in revenue. Revenue was up 7.1 percent from a year ago.
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Same-store sales growth of just 5.2 percent narrowly missed Wall Street forecasts of 5.3 percent growth.
However, Lowe’s 5.2 percent growth was well short of the 8 percent same-store sales growth that rival Home Depot ( HD) reported earlier this month. Home Depot has consistently outperformed Lowe’s in recent years, but investors are hoping new CEO Marvin Ellison can turn the tables on Home Depot.
One of Ellison’s first major moves as CEO was to close all of Lowe’s 99 Orchard Supply Hardware stores and focus on the company’s core business.
“We posted solid results this quarter by capitalizing on delayed spring demand,” Ellison says in a statement. “In addition to the decision to exit Orchard Supply Hardware, we are developing plans to aggressively rationalize store inventory, reducing lower-performing inventory while investing in increased depth of high velocity items.”
Looking ahead, Lowe’s cut its full-year revenue growth guidance from 5 percent to 4.5 percent and reduced its full-year same-store sales growth guidance from 3.5 percent to 3 percent. Lowe’s also reduced its full-year EPS guidance from a previous range of between $5.40 and $5.50 to a new range of between $4.50 and $4.60.
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Bank of America analyst Elizabeth Suzuki is optimistic about the impact Ellison could make in the long term for LOW stock.
“Although Lowe’s continues to underperform relative to Home Depot, … Ellison played a key role in Home Depot’s success,” Suzuki says. “LOW, which has underperformed its largest competitor HD for several years, may be entering a period of catch-up through market share growth with pro customers, while simultaneously benefiting from a favorable housing cycle.”
Bank of America has a “buy” rating and $113 price target for LOW stock.
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Lowe’s Companies, Inc. (LOW) Stock Soars Despite Guidance Cut originally appeared on usnews.com
