Lowe's (LOW) Position and Potential Add-Up to Profits - Barron's
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Price: $231.68 +1.26%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 1.9%
EPS Growth %: -20.2%
Overall Analyst Rating:
NEUTRAL (= Flat)
Dividend Yield: 1.9%
EPS Growth %: -20.2%
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Lowe's (NYSE: LOW) shares are trading strong Monday morning following a bullish report by Barron's over the weekend.
Because Lowe's is shifting it's focus to offering everyday low prices rather than attempting to push special deals, some analysts expect the stock to rise to $30 or more, over 55 percent of upside from Monday's price just below $20.
Dropping 30 percent from a recent high of $27.45 on late-March, Lowe's shares carry a valuation of 13x fiscal 2011 earnings, and 11x next year's projected profit.
Lowe's has repurchased $2.4 billion worth of it's common shares through June of 2011 and pays a dividend of 14 cents per share quarterly, currently yielding 2.9 percent. Barron's suggests Lowe's even-out the dividend/buyback mix. The company currently pays out 35 percent of profits, but Barron's says distributing 50 percent might lift the yield to 4 percent, attracting more value investors.
Barron's sees limited downside risk for Lowe's, considering its market position, $13 book value per share, and earnings power. Lowe's owns 90 percent of its stores, possibly setting it up as a target for activist investors.
Store openings are also being cut-back by Lowe's, providing a lift to free cash flow. Lowe's is also expected to generate FCF of $2.5 billion in 2012.
Bringing in Home Depot (NYSE: HD) into the equation, one analyst said the pair is a nice duopoly. Home Depot has a larger national presence and stronger management, while Lowe's has a lower price-to-earnings ratio, room for margin improvement, and less debt.
Investors might be concerned as home-improvement spending has fallen 10 percent over the period from 2005 to 2010. Higher fuel prices have curbed spending from middle-class earners, Lowe's and Home Depot's largest customer base.
Home Depot has also had better comparable-store sales numbers in 2011, causing it's share to fall just 3.6 percent so far in 2011, compared with a 20 percent dip from Lowe's. Barron's notes last quarter, Lowe's comps dropped 0.3 percent, compared with a 4 percent jump in Home Depot's comps.
Both Home Depot and Lowe's stand to gain market share from Sears (Nasdaq: SHLD), which is the largest appliance dealer in the U.S. Lowe's in number two in that category.
Although housing data points like starts and home sales have been stagnant, Barron's contends home improvement is still a favorite activity among many Americans. When the housing market begins to recover, Lowe's should be well positioned enough to deliver strong returns for investors.
Shares of Lowe's are down about 0.4 percent this afternoon.
Because Lowe's is shifting it's focus to offering everyday low prices rather than attempting to push special deals, some analysts expect the stock to rise to $30 or more, over 55 percent of upside from Monday's price just below $20.
Dropping 30 percent from a recent high of $27.45 on late-March, Lowe's shares carry a valuation of 13x fiscal 2011 earnings, and 11x next year's projected profit.
Lowe's has repurchased $2.4 billion worth of it's common shares through June of 2011 and pays a dividend of 14 cents per share quarterly, currently yielding 2.9 percent. Barron's suggests Lowe's even-out the dividend/buyback mix. The company currently pays out 35 percent of profits, but Barron's says distributing 50 percent might lift the yield to 4 percent, attracting more value investors.
Barron's sees limited downside risk for Lowe's, considering its market position, $13 book value per share, and earnings power. Lowe's owns 90 percent of its stores, possibly setting it up as a target for activist investors.
Store openings are also being cut-back by Lowe's, providing a lift to free cash flow. Lowe's is also expected to generate FCF of $2.5 billion in 2012.
Bringing in Home Depot (NYSE: HD) into the equation, one analyst said the pair is a nice duopoly. Home Depot has a larger national presence and stronger management, while Lowe's has a lower price-to-earnings ratio, room for margin improvement, and less debt.
Investors might be concerned as home-improvement spending has fallen 10 percent over the period from 2005 to 2010. Higher fuel prices have curbed spending from middle-class earners, Lowe's and Home Depot's largest customer base.
Home Depot has also had better comparable-store sales numbers in 2011, causing it's share to fall just 3.6 percent so far in 2011, compared with a 20 percent dip from Lowe's. Barron's notes last quarter, Lowe's comps dropped 0.3 percent, compared with a 4 percent jump in Home Depot's comps.
Both Home Depot and Lowe's stand to gain market share from Sears (Nasdaq: SHLD), which is the largest appliance dealer in the U.S. Lowe's in number two in that category.
Although housing data points like starts and home sales have been stagnant, Barron's contends home improvement is still a favorite activity among many Americans. When the housing market begins to recover, Lowe's should be well positioned enough to deliver strong returns for investors.
Shares of Lowe's are down about 0.4 percent this afternoon.
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