Shares of popular home-improvement retailer Bed Bath & Beyond Inc. (BBBY - Get Rating) soared last month with the return of the meme frenzy. However, the stock gave up most of its gains due to financial turmoil in the company.

Lowe’s Companies, Inc. (LOW - Get Rating) is a home improvement retailer operating internationally. The company offers a line of construction, maintenance, repair, remodeling, and decorating products. It provides home improvement products and offers installation services.

For the fiscal second quarter that ended July 29, LOW’s earnings per common share increased 9.9% year-over-year to $4.67.

LOW now expects operating income and diluted EPS toward the top end of its outlook range. The company expects 53-week yearly sales of $97 billion to $99 billion and an EPS of $13.10 to $13.60.

However, the stock is down 13.9% over the past six months and 3.1% over the past month. It closed its last trading session at $192.96.

Here are the factors that could affect LOW’s performance in the near term:

Wide Profit Margins

LOW’s trailing-12-month EBITDA margin, net income margin, and levered FCF margin of 15.00%, 8.83%, and 7.08% are 31.9%, 49.7%, and 299.4% higher than their respective industry averages of 11.37%, 5.90%, and 1.77%.

Its trailing-12-month ROTC and ROA of 28.67% and 18.04% are 304.2% and 247.7% higher than their respective industry averages of 7.09% and 5.19%.

Stable Dividend History

On August 26, LOW declared a quarterly dividend of $1.05 per share, payable to shareholders on November 2. This cumulates to an annual dividend of $4.20 and yields 2.18% on prevailing prices.

The company’s dividend payouts have increased at a 20.1% CAGR over the past three years and 18.8% CAGR over the past five years. LOW has a record of 58 years of consecutive dividend growth.

Analysts Expect EPS Growth

The consensus EPS estimates of $3.08 and $2.21 for the quarters ending October 2022 and January 2023 indicate 12.8% and 24.2% year-over-year increases. Street EPS estimate for the current year (fiscal 2023) of $13.51 reflects a rise of 12.2% from the prior year. EPS is expected to increase by 9.4% per annum over the next five years.

POWR Ratings Reflect Promising Prospects

LOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

LOW has a Sentiment and Quality grade of B in sync with its favorable analyst expectations and broad profitability margins.

In the 62-stock Home Improvement & Goods industry, it is ranked #14.

Click here to see the additional POWR Ratings for LOW (Growth, Value, Momentum, and Stability).

View all the top stocks in the Home Improvement & Goods industry here.

Bottom Line

The company has an excellent record of stable dividend growth. Moreover, Wall Street analysts are bullish on the stock. Analysts expect the stock to climb 25.1% to $241.35 in the near term. Hence, I think the stock might be a solid buy now.

How Does Lowe’s Companies, Inc. (LOW) Stack Up Against its Peers?

While LOW has an overall POWR Rating of B, one might consider looking at its industry peers, Acuity Brands, Inc. (AYI - Get Rating) and Bassett Furniture Industries, Incorporated (BSET - Get Rating), which have an overall A (Strong Buy) rating.

LOW shares were trading at $197.43 per share on Wednesday morning, up $4.47 (+2.32%). Year-to-date, LOW has declined -22.62%, versus a -16.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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