Company Description: Lowe's Companies, Inc. and its subsidiaries operate as a home improvement retailer in the United States and Canada. The company offers a range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA.
Other: LOW is a member of the S&P 500, is an Achiever and an Aristocrat. The home improvement retail industry is cyclical in nature and is strongly reliant on economic growth. Home ownership rates are near historical highs and the homes are aging. That coupled with an increased net worth of baby boomers make for a powerful long-term driver for LOW's growth. In addition, LOW has favorable growth opportunities in for international expansion in both Canada and Mexico.
Conclusion: LOW earned a Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and one Stars in the Dividend Income vs. MMA section for a net total of 5 Stars. This quantitatively rates LOW as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could go up to $29 before LOW dropped to the $3,000 NPV MMA Diff. I like to see; or its long-term dividend growth could drop to 15.9% and LOW would still be a buy. As a long-time Home Depot (HD) shareholder, I have not been pleased with HD as a retail operation. I would drive past HD to shop at LOW. This has created a desire in me to own LOW, but the numbers never would work - until now. Barring a significant change in LOW's fundamentals or valuation, I will likely initiate a position in LOW during the month of August.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of LOW (0.0% of my Income Portfolio).
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