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Lowe's (LOW) Digital Division and Pro Business Augur Well

Lowe's Companies, Inc. LOW remains well-positioned to capitalize on the demand for the home improvement market, backed by investments in technology, merchandise category and strength in Pro business. A strong digital base has been aiding the company’s performance for a while now. LOW’s Total Home strategy, including complete solutions for various home improvement needs, also bodes well.

This renowned home-improvement retailer has gained 9.4% in the past six months compared to the industry’s 7.1% gain. The long-term expected earnings growth rate of 13.2% coupled with a VGM Score of A further speaks volumes for this currently Zacks Rank #3 (Hold) stock’s potential.

The Zacks Consensus Estimate for Lowe’s fiscal 2022 sales and earnings per share (EPS) is currently pegged at $97.4 billion and $13.75, respectively. These estimates suggest growth of 1.2% and 14.2%, respectively, from the year-ago fiscal quarter’s corresponding figures, raising analysts’ optimism about the stock.

Detailing Strategies

About its digital efforts, management has been making investments in the omnichannel, including expanding online assortment, boosting user experience and improving fulfillment capabilities. Sales at Lowes.com increased 12% year over year in the third quarter of fiscal 2022,  representing about 10% sales penetration.

Overall, management is focused on enhancing the omnichannel retailing capabilities in store operations, website and supply chain to resonate well with the customers’ demand to shop, however, whenever and wherever they like. In addition, Lowe’s is constantly making smart moves to offer customers a seamless shopping experience and is expanding its market delivery strategy.

Pro customers continue to be a significant driver for Lowe's business. To keep augmenting sales from pro customers, management is enhancing Pro-focused brands with Pro offerings across LOW’s stores and online through improved service levels, deeper inventory quantities, intuitive store layout and more Pro national brands. The Pro segment is expected to continue its momentum with better in-stock inventory levels, an enriched service suite and a new Pro loyalty program. During the fiscal third quarter, pro sales jumped 16% from the year-ago fiscal quarter’s level and 36% on a two-year basis.

What’s More?

Lowe’s delivered robust earnings results for third-quarter fiscal 2022, with both the top and the bottom line beating the Zacks Consensus Estimate and improving from the previous fiscal year’s respective quarterly readings. Lowe’s reported earnings per share of $3.27, surpassing the Zacks Consensus Estimate of $3.11 and rising 19.8% year over year. Also, net sales of $23,479 million increased 2.4% year over year and exceeded the Zacks Consensus Estimate of $23,150 million.

The results benefited from higher comparable sales (comps) and Pro sales as well as improved DIY sales trends. Also, LOW witnessed a substantial improvement in the adjusted operating margin on the back of disciplined execution and cost management. Comps inched up 2.2% in the quarter under review. Comps for the U.S. home-improvement business rose 3% in the reported quarter.

Management expects revenues of $97-98 billion (including the 53rd week) for fiscal 2022. The 53rd week is likely to witness a sales increase by $1-$1.5 billion. In fiscal 2021, Lowe’s revenues amounted to $96.3 billion. Lowe’s continues to expect the gross margin rate to improve slightly from the last fiscal year’s level. The adjusted operating margin is expected to be 13%. Management anticipates earnings per share of $13.65-$13.80 for the current fiscal year compared with the earlier projected range of $13.10-$13.60 and $12.04 a share earned in the last fiscal year.

In a nutshell, Lowe’s is well-poised for growth, given the above-discussed tailwinds.

Solid Picks in Retail

We highlighted three better-ranked stocks, namely Tecnoglass TGLS, GMS GMS and Wingstop WING.

Tecnoglass manufactures and sells architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 40.5% and 76.4%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.

GMS, a distributor of wallboard and suspended ceiling systems, currently flaunts a Zacks Rank of 1. GMS has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for GMS’ current financial-year sales and EPS suggests growth of 10.8% and 10.2%, respectively, from the year-ago reported figures. GMS has an expected EPS growth rate of 10.7% for three-five years.

Wingstop, which franchises and operates restaurants, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 5.8%, on average.

The Zacks Consensus Estimate for Wingstop’s current financial-year sales and earnings per share suggests growth of 25.3% and 22.2%, respectively, from the year-ago reported numbers. WING has an expected EPS growth rate of 11% for three-five years.

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