Lowe’s Stock Uptrend Can Continue for These 2 Reasons

Lowe’s Companies Inc (NYSE:LOW) uptrend can continue because the company reaffirmed its 2025 and capital return outlooks. The first includes tepid results but steady business, with strengths in the professional and online businesses offsetting spotty weakness in the consumer. The second includes reduced share buybacks relative to the prior years, positive cash flow, debt reduction, and a shrinking shareholder deficit.

The shareholder deficit is a critical factor, related to debt and aggressive share repurchases in prior years, and it fell nearly 10% in the last year.

Based on the balance sheet, cash flow, guidance, and declining debt load, the pace of debt and deficit reduction could accelerate as the year progresses, adding momentum to the rebound sparked by the Q1 2025 earnings release and guidance.

Lowe’s Stock Price Uptrend Is Intact Following Guidance Update

Lowe’s stock price has been in an uptrend for years and remains so following the guidance update. Price action confirmed support at a critical moving average before the release, and upward momentum persisted afterward. The market will likely continue to rise in May and late Q2, provided it can clear resistance targets near $240.

Lowe’s Advances on Mixed Results: Margin Is a Factor

Lowe’s didn’t have a stellar quarter with revenue contracting by 2.2% compared to last year and missing the consensus estimate, but the results could have been worse. Comps fell by 1.7% on weather and consumer-related weaknesses, offset by growth in the pro and online segments.

The critical detail is the margin and guidance, which were better-than-expected and reaffirmed. The net result for Q1 is that GAAP earnings contracted slightly faster than revenue. Still, the $2.92 reported is a nickel ahead of MarketBeat’s reported consensus and plays into the guidance.

Like competitor Home Depot (NYSE:HD), Lowe's reaffirmed its outlook for 2025 despite macroeconomic uncertainty, tariffs, and headwinds in the housing market. It forecasts revenue in a range of $83.5 to $84.5 billion, putting the midpoint slightly below the consensus forecast, and the margin will remain strong.

GAAP EPS is forecast in a range with the midpoint well above the consensus estimate, and the forecast may be cautious. More favorable weather in Q2 will likely lead consumers back into the stores for seasonal and home improvement supplies.

Lowe’s capital return is attractive and a driving force for the share price. The dividend yields about 2.0%, with shares near May lows. The distribution is growing, and share repurchases compound it. The pace of repurchases has slowed from recent peaks but remained sufficient to offset share-based compensation in Q1, resulting in a net 2% decline in shares relative to last year.

The pace of distribution growth has also slowed, but remains healthy for a payout ratio is low, only about 40% of the 2025 earnings forecast, including a 5% increase to the 2024 payment.

Institutions and Analysts Buy in Q2, But Analysts May Cap Gains

The analysts and institutional activity in Q1 and Q2 2025 are bullish for Lowe’s stock, but recent price target reductions from some analysts may cap gains. The critical details are that the coverage remains firm with 25 analysts rating the stock, the consensus is a Moderate Buy with bullish bias, and the price target forecasts a 20% upside relative to the pre-release closing price.

Ongoing institutional buying throughout the year, coupled with the potential for analysts to reaffirm or raise price targets after the Q1 release, could provide a bullish catalyst for Lowe’s.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Written By: MarketBeat.com