Lowe’s Beats on Top and Bottom Lines

Lowe’s Companies, Inc (Ticker Symbol: LOW) reported better than expected earnings and revenue this week.  The Mooresville, North Carolina based company reported an earnings per share beat of $2.15 per share  vs. Wall Street analysts’ expectations of $2.01 per share.  Additionally, Lowe’s reported better than expected revenue, reporting revenues of $20.99 billion vs. Wall Street analysts’ expectations of  $20.94 billion.  Same-store sales for the quarter were up 2.3%, which is higher than the 1.9% that Wall Street was expecting.

Above is a chart of Lowe’s stock price over the past 20 months.  The stock started weak in 2018 forming a v-shaped reversal pattern early in the first quarter. Lowe’s proceeded to sell-off over the next five months led by a poor earnings and guidance report that sent the stock gapping lower. The stock finally found some support around the $80.00 price level with forming a bullish divergence.   A bullish divergence is where the stock makes a lower low in price but the Relative Strength Index makes a higher low, as indicated on the chart by the green lines. After Lowe’s bottomed, the stock rallied over 40% before finding some price resistance at the $116.00 level.

The Stock took an unfortunate turn for investors in the fourth quarter of 2018. Lowe’s’ stock spent November of 2018 – March of 2019 forming an Inverted Head and Shoulders bottoming formation. Traders and investors sometimes look at Inverted Head and Shoulders patterns for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in  Lowe’s case. Some traders use what’s called a “measured move”, to try and project where the stock might go in the future based on breakouts from technical formations.  In Lowe’s case, one would take the bottom price from the head of the pattern (roughly $85) and the price of the neckline from the pattern (roughly $101) then subtract them to get the difference. ($16) The difference is then projected from the neckline in the direction of the breakout to project the price of the measured move.  Neckline – Difference = Measured Move. In Lowe’s case, the projected price target from the Inverted Head and Shoulders pattern was roughly $117.00, which it achieved in the second quarter of this year. Lowe’s proceeded to trade to an all-time high of $117.94 on April 16th of this year.  Currently, the stock is trading above both its 100 and 200-day Simple Moving Averages.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 19 analysts offering 12-month price targets, the average price target for Lowe’s stock is $117.58. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $107.92.

In the second quarter, Lowe’s repurchased nearly $2 billion worth of stock and paid out $382 million in dividends.  The retail home improvement giants Lowe’s and Home Depot (Ticker Symbol: HD) both have had solid second-quarter earnings releases.  Investors in the home improvement space should look to Lowe’s next earnings release on November 20th for fresh news within the company.

 


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