Connect with us

Uncategorized

Analyst unveils new Lowe’s stock price target ahead of earnings

Published

on

They are three letters that represent a multi-billion dollar industry: DIY.

Mention do-it-yourself home repairs, and some people will probably think of This Old House or the 1990s sitcom “Home Improvement,” where Tim Allen portrayed the host of the fictional “Tool Time” TV program. 

Others might think of HGTV, the Property Brothers Jonathan and Drew Scott, or Joanna and Chip Gaines of Magnolia Network. Whatever your particular cultural reference, rest assured that the DIY market is a revenue monster.

An estimated 75% of U.S. homeowners take on DIY projects, and 62% named saving money a top reason for their home improvement efforts. As a result, total U.S. home improvement sales amounted to $538 billion in 2021, according to Statista, and is projected to grow to $621 billion in 2025.

The number of do-it-yourselfers climbed during the COVID-19 outbreak as people had more time on their hands, interest rates were at rock bottom, and stimulus checks were flowing. 

That was good news for home improvement retailers like Lowe’s, which saw its stock price soar in 2021 thanks to higher demand. 

Unfortunately, rising interest rates, inflation, and job uncertainty have increased, denting demand and causing investors to wonder what could happen to Lowe’s shares next.

Lowe’s shares are facing headwinds as do-it-yourself demand slips. Photographer: Luke Sharrett/Bloomberg via Getty Images.

Bloomberg/Getty Images

Pullback in DIY spending

Young homeowners are more likely to attempt do-it-yourself projects because they tend to have less disposable income and believe that the DIY approach will be less costly than hiring a contractor.

The most common types of DIY projects are home interior projects, such as painting, flooring, and décor, which are taken on by 31% of homeowners surveyed.

Unfortunately, those younger DIYers are also most susceptible to tighter budgets, and as a result, Lowe’s  (LOW) – Get Free Report revenue has declined year-over-year for three straight quarters.

Related: Walmart makes a surprise move that investors will love

Lowe’s, which reports quarterly earnings on Feb. 27, is the second-biggest name in the home improvement game, behind Home Depot  (HD) – Get Free Report, which is slated to release updated earnings results on Feb. 19.

Lowe’s posted better-than-expected third-quarter earnings in November but trimmed its full-year profit forecast, echoing Home Depot’s warning that consumers were spending less on big-ticket items- those worth more than $1,000- heading into the holidays.

“While we’ve seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment,” Chairman and CEO Marvin Ellison said during a conference call with analysts at the time.

Ellison reminded the analysts that DIY customers drive 75% of the company’s revenue while professionals only account for 25% of sales, as opposed to the broader market where the market is roughly fifty-fifty. “As a result, whenever the DIY customer becomes cautious, it disproportionately affects us.”

Given that backdrop, analysts surveyed by FactSet expect Lowe’s to report earnings of $1.68 per share on sales of $18.3 billion, down from earnings of $2.28 per share and revenue totaling $22.45 billion one year ago.

Lowe’s CEO ‘Bullish’ on home improvement

Ellison said that Lowe’s remained bullish on the home improvement industry’s medium- to long-term outlook.

More Retail:

Costco members get some sneaky bad newsPopular retailer looks set for Chapter 11 bankruptcy filing‘Pay Now, Pay Later’ is more popular, and riskier, than ever

“We expect home prices to be supported by a persistent supply-demand imbalance of housing, while at the same time, 250,000 millennial household formations are expected per year through 2025, and their parents and grandparents, the baby boomers, increasingly prefer to age in place in their own homes,” he said.

Nevertheless, on Feb. 5, Truist lowered its price target on Lowe’s stock to $244 from $252.

Analyst Scot Ciccarelli told investors in a research note that he is reducing his margin assumptions for fiscal years 2024 and 2025 and cutting his earnings estimates to $12.80 and $14.20 a share from $13.35 and $14.75, respectively.

He did, however, keep his buy rating on the company.

“For the medium-term, we are becoming increasingly bullish on the home improvement sector given general spending resilience, home equity increases, easing comparisons, and the recent positive inflection in Private Residential Fixed Investment PFRI data,” he said.

Ciccarelli said that he believed consumer spending remains fairly steady due to healthy personal balance sheets and strong employment. 

In addition, while the tightening cycle should slow spending, it shouldn’t derail it, he said.

The analyst said that while Lowe’s comparable store sales have decelerated notably over the last two quarters—down roughly 7% to 8%– he believes the company will also get to compare against these easier results in the second half of the calendar year.

Ciccarelli added, “We remain buyers and think that LOW can move sharply higher if we are indeed at the early stages of an easing cycle.”

Related: Veteran fund manager picks favorite stocks for 2024

bankruptcy
covid-19
stimulus
stocks
interest rates
consumer spending
stimulus

Continue Reading

Uncategorized

Shares of Coffee Giant Starbucks Look Appealing After 5-Year Lull

Published

on

With shares of Starbucks (SBUX) trading around 2019 levels (low 90’s) despite sales and free cash flow that are running well above pre-pandemic levels, I am getting close to boosting my firm’s exposure for my clients. With both a P/E and a P/FCF multiple in the mid 20’s, SBUX fetches a price at the low end of historical valuation ranges despite a competitive position that remains as strong as ever today.

5 Year Price Chart of Starbucks SBUX Stock (2/5/24)

The recent stock price weakness can be linked to negative press (a small but growing subset of stores whose workers believe unionizing is the answer to their prayers), as well as ever-rising retail pricing driven by underlying inflation that threatens to reduce consumer visits.

The first concern seems quite manageable given the overall size of the company. A few hundred unionized stores out of nearly 20,000 total in North America will hardly bite the company’s income statement. I believe the union momentum is likely slowing due to unimpressive results thus far (the two sides have yet to come to an agreement on a contract despite months and months of back and forth). The strongest evidence that disgruntled SBUX employees are simply looking for a scapegoat becomes evident when the media presses them on why they don’t simply quit and work somewhere else. After all, if SBUX treats their employees so badly relative to other chains, a mass exodus of good workers would probably be quite successful in getting SBUX executives to play ball.

Interestingly, the union hopefuls respond to such suggestions by pointing out that they can’t make as much money elsewhere and the benefits aren’t as good. This is true, of course, relative to smaller, more local coffee shops nationwide, but it blunts the impact of their pro-union arguments in almost comical fashion. Basically, SBUX is a better place to work than most other food service companies, but since they can’t get everything they want, they’re going to unionize. I suspect this flawed logic (they don’t really have any negotiating leverage) is why the vast majority of SBUX workers have not pursued a union vote and seem generally happy with their jobs.

The concern of inflation is always real, as SBUX has been forced to raise prices materially like everybody else in recent years. But for decades now the SBUX customer has generally seen the product as a relatively affordable luxury and regulars keep coming back during the ups and downs of most economic cycles. It is hard to see that trend changing now, after it withstood the Great Recession and the pandemic. As a result, the odds that SBUX continues to be a mature, dominant food service business with cash-cow characteristics for many decades to come appear quite high.

All in all, I view SBUX as a phenomenal business that currently trades near historical troughs in valuation terms (I went back about a decade to make that assessment). Don’t get me wrong – it’s far from dirt cheap, but great businesses rarely are, and buying high quality at very reasonable prices has served long-term investors very well over the long term.

Full Disclosure: Long shares of SBUX personally and for some clients, with the latter group likely to see larger purchases in the near future.

recession
pandemic
recession

Continue Reading

Uncategorized

Analyst unveils new Lowe’s stock price target ahead of earnings

Here’s what could happen to Lowe’s shares next.

Published

on

They are three letters that represent a multi-billion dollar industry: DIY.

Mention do-it-yourself home repairs, and some people will probably think of This Old House or the 1990s sitcom "Home Improvement," where Tim Allen portrayed the host of the fictional "Tool Time" TV program. 

Others might think of HGTV, the Property Brothers Jonathan and Drew Scott, or Joanna and Chip Gaines of Magnolia Network. Whatever your particular cultural reference, rest assured that the DIY market is a revenue monster.

An estimated 75% of U.S. homeowners take on DIY projects, and 62% named saving money a top reason for their home improvement efforts. As a result, total U.S. home improvement sales amounted to $538 billion in 2021, according to Statista, and is projected to grow to $621 billion in 2025.

The number of do-it-yourselfers climbed during the COVID-19 outbreak as people had more time on their hands, interest rates were at rock bottom, and stimulus checks were flowing. 

That was good news for home improvement retailers like Lowe's, which saw its stock price soar in 2021 thanks to higher demand. 

Unfortunately, rising interest rates, inflation, and job uncertainty have increased, denting demand and causing investors to wonder what could happen to Lowe's shares next.

Lowe's shares are facing headwinds as do-it-yourself demand slips. Photographer: Luke Sharrett/Bloomberg via Getty Images.

Bloomberg/Getty Images

Pullback in DIY spending

Young homeowners are more likely to attempt do-it-yourself projects because they tend to have less disposable income and believe that the DIY approach will be less costly than hiring a contractor.

The most common types of DIY projects are home interior projects, such as painting, flooring, and décor, which are taken on by 31% of homeowners surveyed.

Unfortunately, those younger DIYers are also most susceptible to tighter budgets, and as a result, Lowe's  (LOW) - Get Free Report revenue has declined year-over-year for three straight quarters.

Related: Walmart makes a surprise move that investors will love

Lowe's, which reports quarterly earnings on Feb. 27, is the second-biggest name in the home improvement game, behind Home Depot  (HD) - Get Free Report, which is slated to release updated earnings results on Feb. 19.

Lowe's posted better-than-expected third-quarter earnings in November but trimmed its full-year profit forecast, echoing Home Depot's warning that consumers were spending less on big-ticket items- those worth more than $1,000- heading into the holidays.

"While we've seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment," Chairman and CEO Marvin Ellison said during a conference call with analysts at the time.

Ellison reminded the analysts that DIY customers drive 75% of the company's revenue while professionals only account for 25% of sales, as opposed to the broader market where the market is roughly fifty-fifty. "As a result, whenever the DIY customer becomes cautious, it disproportionately affects us."

Given that backdrop, analysts surveyed by FactSet expect Lowe's to report earnings of $1.68 per share on sales of $18.3 billion, down from earnings of $2.28 per share and revenue totaling $22.45 billion one year ago.

Lowe's CEO 'Bullish' on home improvement

Ellison said that Lowe's remained bullish on the home improvement industry's medium- to long-term outlook.

More Retail:

"We expect home prices to be supported by a persistent supply-demand imbalance of housing, while at the same time, 250,000 millennial household formations are expected per year through 2025, and their parents and grandparents, the baby boomers, increasingly prefer to age in place in their own homes," he said.

Nevertheless, on Feb. 5, Truist lowered its price target on Lowe's stock to $244 from $252.

Analyst Scot Ciccarelli told investors in a research note that he is reducing his margin assumptions for fiscal years 2024 and 2025 and cutting his earnings estimates to $12.80 and $14.20 a share from $13.35 and $14.75, respectively.

He did, however, keep his buy rating on the company.

"For the medium-term, we are becoming increasingly bullish on the home improvement sector given general spending resilience, home equity increases, easing comparisons, and the recent positive inflection in Private Residential Fixed Investment PFRI data," he said.

Ciccarelli said that he believed consumer spending remains fairly steady due to healthy personal balance sheets and strong employment. 

In addition, while the tightening cycle should slow spending, it shouldn’t derail it, he said.

The analyst said that while Lowe's comparable store sales have decelerated notably over the last two quarters—down roughly 7% to 8%-- he believes the company will also get to compare against these easier results in the second half of the calendar year.

Ciccarelli added, "We remain buyers and think that LOW can move sharply higher if we are indeed at the early stages of an easing cycle."

Related: Veteran fund manager picks favorite stocks for 2024

Read More

Continue Reading

Uncategorized

Cathie Wood sells a major tech stock (again)

The tech-heavy Nasdaq Composite index has soared 33% over the past year.

Published

on

Cathie Wood, head of Ark Investment Management, has achieved rock-star status in the money-management world, even drawing a nickname from her followers – Mama Cathie.

Presumably, she’s watching protectively over her investor-children. But her returns don’t indicate that she’s been the dearest mommy.

Wood’s flagship Ark Innovation ETF,  (ARKK) - Get Free Report, with $7.5 billion in assets, has generated a return of just 5% for the last 12 months. And the annualized return is negative 32% for the past three years and a mere positive 2% for five years.

That’s not too impressive, as the S&P 500 posted positive returns of 21% for one year, 11% for three years, and 15% for five years. Wood’s goal is at least 15% annual returns over five years.

Money manager Cathie Wood, dubbed 'Mama Cathie' by fans, frequently trades in and out of tech stocks.

PATRICK T. FALLON/Getty Images

Cathie Wood’s Year for the Ages

She did have one stupendous year, leading Ark Innovation to a return of 153% in 2020. That and clear presentations of her investment philosophy in ubiquitous media appearances help explain her popularity.

Related: Analysts revamp Amazon stock-price targets after earnings

Wood’s investment strategy isn’t difficult to digest. Ark’s ETFs generally buy young, small stocks in the high-technology categories of artificial intelligence, blockchain, DNA sequencing, energy storage, and robotics. She sees those sectors as game changers for the global economy.

As you might expect, these stocks are quite volatile, so the Ark funds are subject to quite a rollercoaster ride. And Wood frequently trades in and out of her top names.

Investment research giant Morningstar is unimpressed with Wood and Ark Innovation ETF.

“ARK Innovation has dubious ability to successfully navigate the challenging territory it explores,” wrote Morningstar analyst Robby Greengold.

The potential of Wood’s five high-tech platforms listed above is “compelling,” he said. “But Ark’s ability to spot the winners among them and navigate their myriad risks is less so. The strategy’s booms and busts have culminated in middling total returns and extreme volatility since its 2014 inception.”

Greengold isn’t enamored with Wood’s investment style. “Her reliance on her instincts to construct the portfolio is a liability,” he said.

It’s not an investment-by-the-books portfolio. “The strategy narrowly invests in stocks with paltry current earnings, elevated valuations, and highly correlated stock prices,” Greengold said. “Their extreme volatility underscores their highly uncertain futures.”

Wood has defended herself from Morningstar’s criticism. “I do know there are companies like that one [Morningstar] that do not understand what we're doing,” she said.

“We do not fit into their style boxes. And I think style boxes will become a thing of the past as technology blurs the lines between and among sectors.”

Cathie Wood sells Nvidia stock, buys more of others

On Friday, Ark Genomic Revolution ETF  (ARKG) - Get Free Report unloaded 3,022 shares of the semiconductor titan Nvidia  (NVDA) - Get Free Report worth $2 million as of that day’s close. Ark’s previous move with Nvidia's stock was a sale on Jan. 22. Wood has periodically sold Nvidia since last May.

More From Wall Street Analysts:

Last September, she called it a “really expensive and very obvious” stock, according to Bloomberg.

The shares have more than tripled over the past year amid enthusiasm for the company’s connection to artificial intelligence. 

Nvidia is the largest producer of highly powerful and energy-efficient graphic processing units (GPUs) used to train and run AI apps.

On the buy side, Ark funds picked up stock of electric vehicle giant Tesla  (TSLA) - Get Free Report for the seventh day in a row, snatching 114,811 shares Friday, valued at $21.6 million as of that day’s close.

Tesla has lost 29% over the past six months amid weak earnings, production problems, and controversy surrounding Chief Executive Elon Musk’s compensation.

Wood has repeatedly purchased Tesla shares when they have dropped in recent years, voicing support for Musk and his mission to provide non-polluting autos. Tesla is the second biggest holding in Ark Innovation ETF, after Coinbase  (COIN) - Get Free Report.

Ark funds also grabbed 47,926 shares of online securities brokerage Robinhood Markets on Friday, valued at $509,000 as of that day’s close. Robinhood stock has slid 11% over the last month.

After a brief spurt following its initial public offering in July 2021, the stock has struggled and is now down 72% from the IPO.

Meanwhile, Ark funds sold 261,981 shares of video conferencing service Zoom Video Communications  (ZM) - Get Free Report, valued at $16.8 million as of Wednesday’s close.

It has dropped 20% in the past 12 months but remains up 77% from its April 2019 IPO. Demand for the company’s products soared during the pandemic but has slowed since then. Zoom is the fourth biggest holding in Ark Innovation.

Related: Veteran fund manager picks favorite stocks for 2024

Read More

Continue Reading

Trending