Lowe’s Gaps To Highs On Earnings

Lowe’s Companies, Inc (Ticker Symbol: LOW) reported better than expected earnings and gapped to all-time highs earlier this week.  The Mooresville, North Carolina-based company reported an earnings per share beat of $1.41 per share vs. Wall Street analysts’ expectations of $1.35 per share. However, Lowe’s reported less than expected revenue consisting of $17.39 billion vs. Wall Street analysts’ expectations of  $17.68 billion.  The company reported same-store sales for the quarter that were 2.2%, which was lower than the 3.1% that Wall Street was expecting.

Lowe’s also gave an update on its future earnings guidance.  The company is now forecasting its earnings to be in a range from $5.63 to $5.70 per share compared to the prior estimate of $5.67 per share.  Lowe’s does have an ongoing share buyback program and in the second quarter of 2019, Lowe’s repurchased nearly $2 billion worth of stock and paid out $382 million in dividends.

The above image is a chart of Lowe’s stock over the past year.  The stock started off 2019 trending higher. Lowe’s pulled back slightly after its first-quarter earnings release but found some dynamic price support just above its 100-day moving average and proceeded to move higher.  Unfortunately for Lowe’s shareholders, the stock took an unfortunate turn lower led by a poor second-quarter earnings release.  Over the course of the next three months, the stock began to put in a double bottom reversal pattern.

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 double bottom pattern (roughly $92) and the price of the neckline from the pattern (roughly $108) 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 double bottom pattern was $124.00, which the stock has yet to achieve. The stock broke out of its pattern and began to trade higher, eventually trading to an all-time high of 121.22.

Traders who are bullish on Lowe’s should watch the MACD buy signal and its crossing of the zero-line for a possible move back higher to retest its all-time high of $121.22 and its double bottom price target of $124.00.

Traders who are bearish on Lowe’s should watch for a potential close below its earnings day low of $116.96 for a possible move down to its October lows and its 100-day moving average around the $108.00 price level.

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

Based on a survey of 21 analysts offering 12-month price targets, the average price target for Lowe’s stock is $131.55. 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 $117.10.

Investors in the home improvement space should look to Lowe’s next earnings release on March 1st for fresh news within the company.

 


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