Lowe’s Companies (LOW) Stock Analysis
Current Dividend: $1.40
Dividend Yield: 1.7%
Cash Dividend Payout Ratio: 25%
Market Capitalization: 71 B
Enterprise Value: 86 B
Sector: Consumer Cyclical
Industry: Home Improvement Stores
Lowe’s (LOW) operates over 1850 home improvement and hardware stores in the United States, Canada, and Mexico. With over 59 billion in revenues, Lowe’s is the second largest home improvement retailer in the world (behind Home Depot).
Lowe’s customers are homeowners, renters, and professionals. Selling channels include in-store, online, on-site, and contact centers (phone).
Lowe’s specializes in products and services for “retail do-it-yourself and do it for me” customers and commercial business clients looking for home decorating, maintenance, repair, and remodeling. A typical Lowe’s store carries 36,000 items with hundreds of thousands available through special orders.
Lowe’s product categories include: Lumber & Building Materials, Tools & Hardware, Appliances, Fashion Fixtures, Rough Plumbing & Electrical, Lawn & Garden, Seasonal Living, Paint, Flooring, Millwork, Kitchens, Outdoor Power Equipment, and Home Fashions.
Lowe’s has established itself as a low cost provider and efficient operator. Its size gives it great bargaining power, and its distribution network provides operational efficiency.
LOW is an extremely shareholder friendly company. In addition to 53 consecutive years of dividend increases, the company has invested 18 billion dollars in the last 5 years to purchasing its own stock.
LOW depends on a very cyclical industry that is challenging when the economy is slow. Undoubtedly, the home improvement industry has been stimulated by artificially low interest rates. It’s unclear how much high rates might hurt future sales and growth.
International expansion and providing service to under served communities including domestic markets and international locations. In 2016 Lowe’s acquired Rona, a Canadian home improvement retailer, that provides the company a strategic footprint in a large and growing market.
A greater emphasis on professional sales could boost opportunities with the growth in the number of baby boomers at the age they desire these kinds of services.
Slow growth, small margins, and above average debt make economic downturns painful. Higher interest rates can have a magnifying effect on this cyclical industry.
Dividend Analyzer Checklist
(updated December 2016)
Dividend Safety Score (19/33 points)
Dividend Per Share (ttm): $1.26
Dividend Payout Ratio (ttm): 44%
Dividend Per Share (10 Year Growth): 25.5%
Cash From Operations (CFO) Per Share (ttm): $6.17
CFO Dividend Coverage (CFO / DPS): 4.9 (5/6)
Free Cash Flow (FCF) Per Share (ttm): $4.86
FCF Dividend Coverage (FCF / DPS): 3.9 (6/6 points)
Net Financial Debt: $14112 M
Total Assets: $35370 M
Net Financial Debt / Total Assets: 40% (4/12 points)
Net Financial Debt to EBITDA (ttm): 217%
Total Liabilities to Assets Ratio (Qtr.): 81%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (18/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 3.2% (0/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 4.4% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 2.2% (0/6 points)
Operating Earnings Yield (ttm): 7.9% (3/7 points)
Net Income (ttm): $2441 M
Gross Profit (ttm): $21620 M
Total Assets: $35370 M
Gross Profitability Ratio = GP / Total Assets: 61% (11/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 20%
Return on Invested Capital (ROIC): 11%
Return on Invested Capital (ROIC) (5 Year Median): 11%
Return on Invested Capital (ROIC) (10 Year Median): 10%
Valuation Score (16/34 points)
Free Cash Flow Yield (ttm): 6.8% (7/9 points)
EV to EBIT (ttm): 15.1 (4/9 points)
EV to EBITDA (ttm): 11.5 (5/9 points)
PE10: 34.6 (0/7 points)
Price to Sales Ratio (ttm): 1.0
Price to Book Value (ttm): 9.4
Price to Earnings Ratio (P/E) (ttm): 25.8
TOTAL POINTS – (53/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
Latest Earnings Report: 11/16/2016
Estimated Next Earnings Report: 2/24/16
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(updated December 2016)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Can Be Considered
Looking For Exposure to Consumer Cyclical Sector / Below Average Option
Deep Value Investors / AVOID
Lowe’s (LOW) is ranked #102 (out of 245) overall and #25 (out of 32) in the Consumer Cyclical Sector by the Dividend Analyzer.
For an investor trying to decide between Lowe’s and Home Depot; it’s basically a toss-up.
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