In long term Lowe is highly correlated with Home Depot due to similar business factors (both are home improvement retailers). This year to date performance is also similar, but we can see that Lowe is performing worse in last month – this is due to weak Q2 results. Is it a buy occasion?

First of all we should remember that housing market is generally doing well and so are share of LOW and HD. Currently Lowe is traded at EV/EBITDA > 10 and P/E = 19, so it doesn’t look like a great deal. On the other hand business is doing quite well (although expectations were higher):

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Well, remember it is not a rocket science business, so investors shouldn’t expect double digit growth. Company is generating a strong free cash flow – in Q2 4.1b (!), and is buying back shares. Quarterly return to shareholders $1.4b (Repurchased $1.2 billion of stock under share repurchase program and paid $251 million in dividends), comparing with market cap of $67b is a nice return yield in quarter of 2.1%.

However if we look on 2016 business outlook we can note, that in Q3 and Q4 generation of cash should be lower, which is slightly negative (maybe that is why share price dropped after Q2 results).

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Summing up, I still think that Lowe’s is a great company, but for me it is quite expensive now…

 

Disclaimer LOW – no position