Lowe’s is the world’s second largest home improvement retailer (first is Home Depot) founded in 1946 year. Company operates around 1850 home improvement and hardware stores, mainly in US. Additionally company owns 1/3 in Australian retailer Woolwhirls. Employment around 175 000 full-time and 91 000 part-time employees.

Company represents cyclical business. Last years were good, but what is even more important from long term investor’s perspective is that even during housing crisis company managed to raise dividend. Margins were quite stable over time.

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Company should grow more or less at rate of GDP growth in US.

 

As it comes to financials (estimates):

Market cap ~ $66B

Net debt ~$11B

Payout ratio ~33%

ROE ~31%

Beta = 1.0

Dividend yield 1.6% + buyback around $5 (buyback yield = 7.5% !!), so in total around 9% (!)

 

Estimated valuation ratios:

EV/EBITDA = 10.8

P/E = 21.3

 

Lowe’s is one of The Dividend Kings. Company is paying dividend from 1963 year. Current dividend yield is around 1.6%. Historically company was paying even up to 3% in 2011, but on the other hand we should notice how big is current buyback program. For cyclical companies returns to shareholders in good economic environment should be high – I think that raising buyback program to $5b means that now company is somewhere near the peak of cycle. Imagine that company will quit buyback (see 2008-2009) – then investors stay with 1.6% dividend yield (ceteris paribus), which even if dividend is higher every year is nothing special for me.

 

Drawdown risk analysis:

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Although beginning of 2016 year is very tough for stock markets and share price for Lowe’s is almost 10% down from the peak I see that historically drawdowns were higher – especially in 2008 during a housing crisis. Now economic situation is good – maybe it is still a good time to buy shares, but I am looking for “special offers” and I think I will wait for economy to deteriorate and then will consider buying Lowe’s shares. 40% drawdown is special price from historical point of view. It means around $50 is interesting level – far from current levels, but maybe patience will be rewarded.

 

Awesome long term performance (historical share prices are adjusted for dividends):

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Summing up, Lowe’s is a great company to invest in a long term (rising dividend during the housing crisis shows high quality of company), but the question is timing. Currently I see high valuation and share price with 10% drawdown – now it is not interesting for me.

 

Disclaimer LOW – no position