Where’s LOW Stock Headed After Q4 Earnings Results?
Following Home Depot’s stellar results on Tuesday, the market has set high expectations for Lowe’s Companies, Inc. (NYSE:LOW). Holders of LOW stock are on the edge, but I’m unruffled.
Lowe’s just reported its fourth-quarter results yesterday and I’m bullish on LOW stock. Here are three things that impress me about the company.
If you’ve been paying attention, one particular economic factor has shifted in Lowe’s favor in recent months. The U.S. housing market is recovering on the back of an improving jobs market. Peer company Home Depot managed to report robust results for the very same reason. (Source: “Warm Weather, Housing Recovery Helped Home Depot, Lowe’s In Q4: Baird,” Barron’s, February 22, 2016.)
Hop north of the border and Lowe’s is doing equally well in its other big market—Canada—where the housing market is booming in a low-interest-rate environment. Remember that demand for housing is correlated to demand for home furnishings and improvement. It’s obvious that the economic trends are in Lowe’s favor.
And that’s not all…
Nature is also favoring Lowe’s this season. Home improvement activity is usually stalled during harsher weather, but this year’s milder winter weather in Canada and most parts of the U.S. has proven to be a boon for the company. On the contrary, even the blizzard on the East Coast briefly helped boost sales for the likes of Lowe’s. Pre-blizzard preparations and post-blizzard renovations drove consumers to home improvement retailers.
The two factors jointly spell good news for Lowe’s this quarter.
“Iris” for “Internet of Things”
However, Lowe’s is no longer just a home improvement retailer; it’s a full-blown home improvement company. At least, that’s what the vice president of the Lowe’s “Iris” business segment says.
Iris by Lowe’s is a high-end business segment that the company has dedicated to smart home solutions. The company has invested in smart technology to provide a wide range of home management devices that offer both interconnectivity and connectivity to your smartphone.
In case you don’t understand why this is important, allow me explain…
Lowe’s is quietly preparing itself to enter the phenomenon of the “Internet of Things” (IoT) as it takes off. Big technology companies like Alphabet, Apple, and Amazon are investing heavily in this rising industry. (The IoT is an ecosystem of smart devices that are connected to each other and to your smartphone, which is all done wirelessly.)
Lowe’s has already created its own lineup of smart home management devices, granting it an early-mover advantage in the IoT industry. As Lowe’s continues to perfect its smart technology, its Iris segment could turn out to be a strong growth driver for the company in the coming years.
Last but probably the best of all reasons to like Lowe’s is for the two ways it rewards holders of LOW stock.
Firstly, there are the dividends. The stock’s current dividend yield is around 1.63% and the company has consistently increased its dividend payout for the last decade and a half.
Secondly, Lowe’s rewards shareholders through share buybacks. In the last quarter alone, $750 million worth of stock was bought back. For the last nine months of fiscal year 2015, Lowe’s repurchased $3.3 billion worth of stock. Plus, return on equity is a solid 31%. These are some very attractive numbers.
And let’s not forget that Lowe’s is about to become the biggest home improvement company in North America. The acquisition of Canada’s Rona will grant it a stronghold over the Canadian market.
LOW stock is currently trading close to its 52-week low. The stock lost more than seven percent of its value since the beginning of this year, following the broader market correction. However, all these signs make me optimistic that the stock is in for a neat run through 2016.