Lowe's: Home Improvement Profits

04/02/2015 7:00 am EST

Focus: STOCKS

Genia Turanova

Editor, Leeb Income Performance

We have several stocks in our portfolio that derive their revenues primarily from the US and that, therefore, benefit from the continuing strength of the US dollar, suggests Genia Turanova, editor of Leeb Income Performance.

Lowe’s Companies (LOW)—the second largest home improvement domestic retailer—is one of them.

The company is leveraged to the home renovation market and should also remain a beneficiary of a two-sided trend: stronger consumer and growth in the US housing market.

Housing affordability, after declining from its recent highs, has recovered too and remains well above the long-term average.

In February, Lowe’s reported results for the quarter ended January 30, 2015 and provided guidance for 2015 that indicated that its business remained strong. Net earnings for the quarter were up 47% year-over-year while diluted EPS increased 58.6% to $0.46 a year ago.

For the fiscal year ended January 30, 2015, net earnings increased 18% from the same period a year ago to $2.7 billion and diluted EPS increased 26.6% to $2.71.

Sales for the fourth quarter increased 7.6% year-over-year to $12.5 billion and comparable sales for the quarter increased 7.3%.

For the fiscal year, sales were $56.2 billion, a 5.3% increase over the same period a year ago and comparable sales increased 4.3%.

Looking forward, the company’s growth guidance seems relatively conservative; the company foresees sales moving 4.5 to 5% higher in fiscal 2015 (with same-store sales to increase 4 to 4.5%); Lowe’s has also guided for an operating margin increase of 80 to 100 basis points and expects diluted EPS of about $3.29 for the year.

We think that we can expect Lowe’s to continue to benefit from the US housing market recovery and, therefore, retain our recommendation.

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