Why Lowe's Companies Stock Just Popped
Key Points
Lowe's beat on earnings this morning, one day after Home Depot missed.
Lowe's earnings declined, however, because of acquisition costs.
Lowe's sales are growing faster than its rival's.
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Hard on the heels of Home Depot's (NYSE: HD) earnings miss, archrival Lowe's Companies (NYSE: LOW) reported an earnings beat today, sending its stock up 5.1% through 11:05 a.m. ET.
Analysts forecast the retailer would report $2.95 per share in Q3 on sales of $20.84 billion. Lowe's actually earned $3.06 per share, although sales were only $20.81 billion.
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Lowe's Q3 earnings
Not all Lowe's news was good. The "$3.06" per share non-GAAP profit, for instance, was only $2.88 per share when calculated according to generally accepted accounting principles (GAAP) -- and that declined nearly 4% from last year. Management ascribed the difference to "$129 million in pre-tax expenses associated with the acquisitions of Foundation Building Materials (FBM) and Artisan Design Group (ADG)."
On the plus side, Lowe's enjoyed 0.4% same-store sales (SSS) growth -- not great, but twice as fast as Home Depot achieved -- and total sales growth hit 3%.
Obliquely referencing Home Depot's blaming "lack of storms in the third quarter" for its earnings miss, Lowe's likewise noted that last year the company benefited from buying related to "hurricane activity," which didn't recur this year, depressing results relatively.
Is Lowe's stock a buy?
So Lowe's did better than Home Depot last quarter -- but is Lowe's stock a buy?
Turning to guidance, Lowe's raised its full-year sales forecast to $86 billion, but lowered its SSS forecast to predict sales will be "flat" against 2024. The company also lowered its forecast for adjusted operating margin and warned that earnings will come in near the low end of previous guidance, at approximately $12.25, adjusted for one-time items.
With the stock trading at a price-to-earnings ratio of under 19x, I'm modestly more optimistic about Lowe's stock than Home Depot -- but Lowe's is still probably a sell for me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
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