How Low Can Lowe’s Companies Go?

Key Points

• Lowe's is moving lower after lackluster results and guidance below consensus. 
• This Dividend King is on track for another increase but don't expect a big one. 
• The charts suggest another big drop in share prices is possible. 

If you are wondering how low Lowe’s Companies NYSE: LOW, or Home Depot NYSE: HD, can go, the answer is a lot lower. The charts are set up to suggest a generational-quality pullback is underway in these blue-chip dividend payers, which is good news for long-term investors. Current stockholders are cringing to read these words, but even they, provided they have a long enough time horizon, should cheer the news.

It is never easy to see an account shed 10% or 20% but those times are mitigated by dividends and the opportunity to increase leverage. 

Lowe’s is a Dividend Aristocrat and King with nearly 60 years of increases to its credit. That is no guarantee the company won’t “right size” its payment like V.F. Corporation NYSE: VFC chose to do. Still, it is a telling indication the company is committed to maintaining and growing the distribution.

The company is carrying debt, but it is manageable. Even with the pullback in revenue expected for 2023, earnings should be more than sufficient to cover the payment, allow the company to make its 60th increase, and continue buying back shares. 

Lowe’s Has Decent Quarter, Guides For Contraction 

Lowe’s had a decent quarter in Q4, like many others in the retail world, not just Home Depot. The company reported $22.4 billion in revenue, an increase of 5% compared to last year. The gain is offset by the extra 13th week in this year’s reporting period, and it missed the consensus by 130 basis points, so it was not much of a catalyst for share prices.

The extra week is worth about 650 basis points of the revenue which is more than enough to offset the strength. On a comp basis, sales are down 1.5% and are expected to fall more in the coming quarters. 

The margin is a ray of light for investors, although this is a case of not-as-bad-as-expected versus good news. The gross margin and operating margins contracted, 60 and 100 bps, respectively, but the contraction was less than expected. This left the adjusted earnings at $.228, up 28%, versus the 5% top-line strength. The earnings also beat the Marketbeat.com consensus estimate by $0.07, but this news was overshadowed by guidance. 

Lowe’s analysts expected revenue to contract compared to 2022 but not as much as the company forecasts. The full-year revenue guidance is $88 to $90 billion versus the consensus of $90.66 billion, and it may be optimistic given the latest mortgage demand figures. Mortgage demand fell to a 28-year low, which will have a rippling effect on the economy should it persist or worsen.

The earnings guidance is a little better; it brackets the consensus with a range that provides some opportunity for better-than-expected results. 

The Analysts Sentiment Is Slipping For Lowe’s 

Marketbeat’s analyst tracking tools have yet to pick up post-release commentaries, but the trend in sentiment is clear; it is deteriorating. The analysts have lowered their ratings from a firm Buy to a Hold and shaved 15% off their price target over the past year. If this trend continues post-release, the stock could easily continue its fall, and it doesn’t look like it needs much help. 

The charts have Lowe’s trading in the middle of a range that could provide support. The catch is that support is about 7.75% below the current action and may not hold. If the analysts throw their weight into selling or trimming positions, this market could fall through the $180 level on its way back to the long-term trend line. That line is another 20% lower.