Is Lowe's (LOW) stock a good buy?

Is Lowe’s (LOW) stock a good buy?

➡️ Although we do outline some of the latest news as of the date of this post, this review on Lowe’s will help you determine if this stock is a good buy, sell, or hold. Our goal is to help you understand the company, where the company is going, the competition, and the leadership. Keep in mind, investing is more than just numbers. It’s wise to look past the numbers and look at the business. This review does exactly that.

Lowe’s is a retail home improvement company that was founded in 1921, headquartered in the US, and has about 2,200 locations in the US and Canada.

Table of Contents

Tykr Rating

  • Summary: On Sale
  • Score: 50/100
  • MOS: 86%
  • Share Price: $193
  • Sticker Price: $758

Lowe’s Company History

  • In 1921, Lucius Smith Lowe opened the first Lowe’s store in North Wilkesboro North Carolina.
  • In 1940, the business was inherited by his daughter, Ruth Buchan, who sold the company to her brother, James Lowe, that same year.
  • In 1943, James’ brother-in-law, Carl Buchan, joined Lowe’s as a business partner.
  • Buchan anticipated the increase in construction demand after World War II and decided to focus heavily on hardware and building materials. Before then, the product mix had also included
  • notions, dry goods, horse tack, snuff, produce, and groceries.
  • In 1949, Lowe’s opened a second location in Sparta, North Carolina.
  • In 1952, Buchan became the sole owner of Lowe’s.
  • In 1954, Jim Lowe started Lowe’s Foods grocery chain.
  • In 1955, Buchan expanded Lowe’s to Asheville, Charlotte, and Durham.
  • In 1960, Buchan died of a heart attack at age 44.
  • In 1961, Lowe’s went public.
  • In 1962, Lowe’s had 21 stores and revenue of $32M.
  • In 1979, Lowe’s started trading on the New York Stock Exchange.
  • In the early 1980s, Lowe’s started to meet headwinds due to the economy and increasing competition from Home Depot, which was founded in 1978. Home Depot was one of the first stores that adopted the mega-store size format which motivated Lowe’s to follow the same trend.
  • In 1999, Lowe’s purchased Eagle Hardware & Garden which had locations in Canada.
  • By the late 2010s, Lowe’s had more than 2,355 locations including 14 stores in Mexico. Due to slow sales growth and the inability to keep up with Home Depot in Mexico, Lowe’s shut down its Mexico locations in 2019.

Lowe’s Business Model

How does Lowe’s make money?

Lowe’s generates revenue through two audiences:

  • DIY Customers – This segment includes consumers who are making their own home improvements.
  • Professionals – These are contractors who buy materials and supplies to complete projects for customers.

Here is a revenue breakdown by segment:

  • Products – 94% of revenue is generated from selling products.
  • Services – 3% of revenue is generated from selling services including installation services.
  • Other – 3% of revenue is generated by selling insurance and extended warranties.

Lowe’s News

This article from fool.com lists 2 stocks that are great buys right now including Lowe’s and Nike. Lowe’s is listed because it has over $5B in free cash, pays a healthy dividend yield of 2.2%, and is down 28% from its all-time high.

This article from fool.com mentions that home improvement companies including Lowe’s and Home Depot are most likely smart investments over the next 5 – 10 years because people are looking to buy homes or make their own home improvements. Right now, Lowe’s has 11% of the home improvement market share while Home Depot has 17% of the market.

This video from CNBC talks about Lowe’s being a good investment due to the demand for building supplies after Hurricane Ian hit. The Hurricane damaged or destroyed over 600,000 homes in Florida alone. This means Florida is going through a rebuilding phase and will rely on Lowe’s and Home Depot.

This article from businessinsider.com talks about the differences between Lowe’s and Home Depot.

  • Contractor sales account for 25% of Lowe’s sales and 45% of Home Depot sales. In other words, more business professionals prefer Home Depot over Lowe’s.
  • Home Depot has a wider selection of top-brand name kitchen and bath products. The most impactful and largest ROI typically comes from kitchen and bath improvements.
  • Home Depot is popular in four countries whereas Lowe’s has only been able to gain market share in two countries.
  • Home Depot’s e-commerce experience is significantly better than Lowe’s. For example, Lowe’s website crashed on the most recent Black Friday.

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Lowe’s Competition

Lowe’s (LOW)

  • Summary: On Sale
  • Score: 50/100
  • MOS: 86%
  • Share Price: $193
  • Sticker Price: $758
  • Revenue: $96B
  • Stores: 2,200
  • Countries: 3 (US, Canada, and Mexico)

Home Depot (HD)

  • Summary: Watch
  • Score: 50/100
  • MOS: 0%
  • Share Price: $290
  • Sticker Price: $390
  • Revenue: $151B
  • Stores: 2,300
  • Countries: 4 (US, Canada, Mexico, and Puerto Rico)

Tractor Supply (TSCO)

  • Summary: On Sale
  • Score: 50/100
  • MOS: 85%
  • Share Price: $214
  • Sticker Price: $788
  • Revenue: $12B
  • Stores: 2,000
  • Countries: 1 (US)

Lowe’s 4Ms

✅ MOS: The score of 50/100 highlights that the financials are pretty good. The MOS shows that this stock has significant upside potential.

Meaning: When the market crashed in 2008, home building slowed for the next few years thereafter. The thing that did not slow is human reproduction. In other words, the population growth did not slow down. Now about 14 years later, we’re starting to see the problem arise which is people need places to live. Companies like Lowe’s and Home Depot are in a great position to capitalize on home building and home improvements.

✅ Moat: There are a few strong competitors in this industry including Home Depot and Tractor Supply. Home Depot is the biggest threat due to the store size and product line but in this market, all major competitors can thrive.

✅ Management: Marvin Ellison has served as CEO of Lowe’s since 2018. Prior to Lowe’s, he served 3 years as Chairman and CEO of JCPenney. Prior to JCPenney, he served 12 years in leadership positions at Home Depot including Executive Vice President. Prior to Home Depot, he served 15 years at Target including a leadership role as Director. The Glassdoor rating of Lowe’s is 3.4 and the CEO approval is 65%. Both scores are lower than expected but I could not find bad reviews specifically written about Ellison. The poor CEO rating appears to be directed at middle management at store locations. This tells me Ellison needs to get closer to the front line and spend more time in stores, getting to know middle management. Unfortunately, most CEOs of public retail companies don’t have the time. In this case, I’m not going to hold the lower rating against him. Ellison has a lot of great experience leading retail companies and he’s a great fit as CEO of Lowe’s.

If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.

Lowe’s Financials

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2019: $71B
  • 2020: $72B
  • 2021: $89B
  • 2022: $96B
  • Revenue has consistently increased which is a great sign.

Net Income (Found on the Income Statement)

  • 2019: $2.3B
  • 2020: $4.2B
  • 2021: $5.8B
  • 2022: $8.4B
  • Net Income has consistently increased which is a great sign.

EPS (Found on the Income Statement)

  • 2019: 2.85
  • 2020: 5.51
  • 2021: 7.77
  • 2022: 12.07
  • EPS has consistently increased which is a great sign.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2019: $5.2B
  • 2020: $2.8B
  • 2021: $9.2B
  • 2022: $8.2B
  • Free Cash Flow has slightly declined since 2021 which is okay.

Total Assets (Found on the Balance Sheet)

  • 2019: $34B
  • 2020: $39B
  • 2021: $46B
  • 2022: $44B
  • Total Assets have slightly declined in 2022 which is okay.

Total Liabilities (Found on the Balance Sheet)

  • 2019: $30B
  • 2020: $37B
  • 2021: $45B
  • 2022: $49B
  • Total Liabilities have increased which is okay.

Total Debt (Found on the Balance Sheet)

  • 2019: $15B
  • 2020: $19B
  • 2021: $26B
  • 2022: $29B
  • Total Debt has increased which is okay. The easiest way to open new store locations is through debt financing.

Total Equity (Found on the Balance Sheet)

  • 2019: $3.6B
  • 2020: $1.9B
  • 2021: $1.4B
  • 2022: -$4.2B
  • Total Equity is a calculation of Assets – Liabilities. In this case, you can see that Lowe’s liabilities are greater than its assets. This is a contributor to why the score is not higher.

Is Lowe’s stock a good buy?

Knowing that home building and remodeling are necessary due to the growing population, this provides us with the confidence that Lowe’s will be needed over the coming decade. If you’re looking for a stock to add to your portfolio, take a look at Lowe’s.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

If you found this stock review interesting, you may also like this review on Home Depot.