Monday, May 19, 2014

Lowe's Companies (LOW) Earning Report: Is Another Breakout Coming? HD & LL

The Q1 2014 earnings report for Lowe's Companies, Inc (NYSE: LOW), a peer of other home improvement retailers like The Home Depot, Inc (NYSE: HD) and Lumber Liquidators Holdings Inc (NYSE: LL), is due out before the market opens on Wednesday. Aside from the Lowe's Companies earnings report, it should be said that Lumber Liquidators Holdings Inc reported Q1 2014 earnings on April 30th while The Home Depot, Inc will report Q1 2014 earnings before the market opens on Tuesday. Analysts will be watching both the Lowe's Companies and The Home Depot, Inc earnings report for any indication of a housing recovery either pushing ahead or stalling with the excuse for the latter no doubt being the bad winter weather we have experienced. 

What Should You Watch Out for With the Lowe's Companies, Inc Earnings Report?

First, here is a quick recap of Lowe's Companies' recent earnings history from Yahoo! Finance:

Earnings HistoryApr 13Jul 13Oct 13Jan 14
EPS Est 0.51 0.79 0.48 0.31
EPS Actual 0.49 0.88 0.47 0.31
Difference -0.02 0.09 -0.01 0.00
Surprise % -3.90% 11.40% -2.10% 0.00%

 

Late last February, Lowe's Companies' broke out of a double-bottom base chart pattern after reporting strong earnings that met Wall Street's expectation. Fourth quarter revenue rose 5.6% to $11.7 billion thanks to renovation spending while net income increased 6% to $306 million plus the company authorized an additional $5 billion share repurchase program. Robin Diedrich, an analyst with Edward Jones & Co., commented in a research note:

"This was a solid quarter. The company's core home-improvement categories posted strong performance, which offset weak seasonal gift sales."

This time around and according to the Yahoo! Finance analyst estimates page, the consensus expects revenues of $13.86B and EPS of $0.60 - slightly down from the EPS consensus of $0.61 from seven days ago, $0.62 from thirty days ago and $0.63 from ninety days ago.

On the news front, it was noticed on Friday that Lowe's Companies' June call option implied volatility is at 25, July is at 23, October is at 20 verses a 26-week average of 22. This suggests a large near term price movement into the expected release of Q1 earnings on May 21. Investors Business Daily also recently pointed out that Lowe's Companies' EPS from 2012 to 2014 have grown 14% on a compounded annual rate while The Home Depot, Inc's grew 24% over the same time plus Lowes' 3% compounded annual sales growth over that period was half that of Home Depot's.

In addition, Lowe's Companies' focuses more on premium goods than The Home Depot, Inc and when consumer confidence and income rise, shoppers often trade up to higher-priced items. Keith Hughes, an analyst at SunTrust Banks, has also commented:

"Lowe's has played at the high end, and Home Depot has played at the low end. That has helped Home Depot, but that advantage should flip to Lowe's."

What do the Lowe's Companies, Inc Charts Say?

The latest technical chart for Lowe's Companies shows some downward trending lines since about the middle of last December:

A look at the long term performance chart shows that The Home Depot's performance has pulled away from the Lowe's Companies while small cap Lumber Liquidators Holdings has been the best performer:

However, The Home Depot's latest technical chart is more bullish looking while Lumber Liquidators Holdings' chart resembles that of Lowe's Companies:

What Should Be Your Next Move?

If you think the income, jobs and consumer confidence picture is improving, then Lowe's Companies could be a good bet, but then again there is the stock's technical chart which seems to indicate less certainty among investors. So maybe we can expect another short term breakout that will benefit traders who are long.  

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