Oppenheimer Reduces Lowe's (LOW) EPS Estimates and Highlights Coming Tough Comps

Brian Nagel, Oppenheimer's Hard Goods analyst, lowered numbers on Lowe's (NYSE: LOW) as expectations have crept up for both sales growth and expense leverage. Earning estimates came down but since his price target implies 15% growth, no change to the rating.

Key housing metrics such as Existing Home Sales and New Home Sales continue to strengthen as measured respectively by a 6.2% increase and a 21.6% increase YoY in Aug. However, "As we study our model and Street expectations we come away increasingly concerned that forecasts for much improved expense leverage in 2H15 could prove optimistic. Waning price promotions and more challenging comparisons are likely to limit sales upside."

In 2H14 comp sales improved to about +6% from +3% in the first half of the year. Street forecasts for a 4% comp gain in 2H15 imply little if any slowing in sales growth despite more challenging comparisons.

He reduced Q3 (Oct.) and Q4 (Jan. 2016) EPS forecasts to $0.73 and $0.56 from $0.76 and $0.58 vs. current Street estimates of $0.78 and $0.59.

LOW trades at a forward four-quarter P/E multiple of about 19x consensus earnings, a level that is down from recent peaks of 22x but above a ten-yr average of 16x. No change to Outperform rating or $85 PT.

For an analyst ratings summary and ratings history on Lowe's click here. For more ratings news on Lowe's click here.

Shares of Lowe's closed at $72.72 yesterday.

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