As of September 15, 2023, Lowe's (LOW, Financial) recorded a daily loss of 4.7%, with a 0.93% gain over the past three months. The Earnings Per Share (EPS) stands at 10.16. The question now is whether Lowe's is fairly valued at its current stock price. This article attempts to answer this question by providing an in-depth analysis of Lowe's valuation. Read on to understand more about the company's financial health and future prospects.
Introduction to Lowe's Companies Inc (LOW, Financial)
Lowe's is the second-largest home improvement retailer worldwide, with over 1,700 stores in the United States. After divesting its Canadian locations (RONA, Lowe's Canada, Réno-Dépôt, and Dick's Lumber) in 2023, Lowe's now focuses on offering products and services for home decorating, maintenance, repair, and remodeling. The company targets retail do-it-yourself and do-it-for-me customers, as well as commercial and professional business clients. Lowe's captures a low-double-digit share of the domestic home improvement market.
Understanding the GF Value
The GF Value is a proprietary measure developed by GuruFocus to estimate a stock's intrinsic value. The GF Value Line, visible on our summary page, represents the fair trading value of the stock. It is calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock is significantly above the GF Value Line, it is considered overvalued and likely to yield poor future returns. Conversely, if it is significantly below the GF Value Line, it is undervalued and expected to deliver high future returns.
According to our valuation method, Lowe's (LOW, Financial) is fairly valued. With a current price of $220.02 per share and a market cap of $127 billion, the stock aligns with our GF Value estimate. This suggests that the long-term return of Lowe's stock is likely to be close to the rate of its business growth.
Financial Strength
Before investing in a company, it's crucial to evaluate its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Lowe's has a cash-to-debt ratio of 0.09, which is lower than 82.17% of 1099 companies in the Retail - Cyclical industry. This indicates that Lowe's has fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk. Lowe's has been profitable for 10 out of the past 10 years, with revenues of $93.20 billion and an Earnings Per Share (EPS) of $10.16 over the past 12 months. Its operating margin of 10.51% is better than 79.67% of 1097 companies in the Retail - Cyclical industry. Lowe's's profitability is ranked as strong by GuruFocus.
Company growth is a major factor in valuation. Lowe's's 3-year average annual revenue growth is 18.4%, ranking better than 80.1% of 1045 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 24.7%, which ranks better than 75.14% of 897 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Lowe's's ROIC was 22.58, while its WACC came in at 7.56.
Conclusion
In conclusion, Lowe's (LOW, Financial) is estimated to be fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 75.14% of 897 companies in the Retail - Cyclical industry. To learn more about Lowe's stock, you can check out its 30-Year Financials here.
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