Q3 Preview: Lowe's (LOW) Could Beat as Indicators, Vendor Trends Positive

Lowe's Co.s (NYSE: LOW) is looking strong Friday heading into its third-quarter performance report. Lowe's is planning to hold a conference call at 9am EST on November 14th, Click here to go to the webcast.

Before the market opens Monday, Lowe's is expected to report earnings of 33 cents per share with revenue of $11.70 billion. Earnings would be a gain of 6.5 percent over the same period last year.

Shares fell about 2 percent through the quarter, to $21.02 at the end of October. Shares have since clawed back 10.5 percent, but are still down 5.4 percent in 2011.

In the same period last year, Lowe's had a book value of $13.55. Currently, the stock is trading for about 13.4 times next years earnings, compared with 14.3 times for Home Depot (NYSE: HD).

Data from Bloomberg shows 11 analysts have a Buy rating on Lowe's, 12 maintain a Hold, and 2 retain a Sell rating. The Street's price target average is $24, with a low of $19 and high of $30. Lowe's has traded from $18.07 to $27.45 over the last 52-week time frame.

Analyst Comments

• Goldman Sachs is modeling for earnings of 34 cents per share. The firm commented that sales momentum looks consistent with last quarter, and vendor sales trends have recovered slightly, suggesting consistent sell-in, which is a modest positive for Lowe's. Further commenting, "We expect the same-store sales gap between Home Depot and Lowe's to stabilize, as Lowe's has, in our view, come to terms with the reality of its underperformance, and is starting to take remedial steps that could prove helpful to sales trends, if not to margins and profitability."
  
  Goldman also thinks sales expectations are subdued for Lowe's.
  
  
• Deutsche Bank is looking for earnings of 35 cents per share with flat comparable-store sales. Deutsche is bullish into the report based on stronger leading indicators, favorable channel checks, and good balance sheets.
  
  On checks, Deutsche notes it called to stores in the Northeast around when October storms hit and affirmed that generators and other storm related products saw a spike in demand. Deutsche believes that most of the sales will end up in Lowe's fourth-quarter report.
  
  Deutsche also notes that sales through “building materials, garden equipment and supplies stores” (NAICS #444) grew 8.4%, from 7.3 percent in the second-quarter of 2011. This points to stronger comps at Lowe's, historically.
  
  On suppliers, Deutsche reports "Stanley Works (NYSE: SWK) organic sales for its commercial do it yourself (CDIY) segment, which is most relevant for Lowe's, grew 6 percent in the third-quarter on 4 percent volume increases. This was up from 5 percent in dollars and 2 percent in units in the second-quarter of 2011."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Lowe's past performance at Streetinsider's Lowe's Income Statement.

Fast Facts:

• Expected EPS: 33 cents
  
• Revenue: $11.70 billion
  
• Q310 EPS: 31 cents
  
• Q310 Revenue: $11.40 billion
  
• Q310 Book Value: $13.55/share
  
  
• Q211 Cash: 72 cents/share
  
  
• Forward P/E: 13.4x
  
• Trailing P/E: 16.0x
  
• 52-Week trading range: $18.07 - $27.45

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