Linked here is a detailed quantitative analysis of Lowe's Companies, Inc. (LOW). Below are some highlights from the above linked analysis:
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 there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
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, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The the home improvement retail industry tends to be very cyclical and relies on economic growth. However, LOW is a strong player with opportunities for growth both domestically and abroad. Aging homes and relatively high home ownership rates are powerful long-term demographic drivers that should help mitigate the continued weakness in residential construction. Consumers viewing their homes as investments will continue to spend money on home improvement projects. Risks include a sharp slowdown in the economy, a large rise in long term interest rates and the inability of LOW to execute its expansion strategy.
Conclusion:LOW did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks LOW as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $28.86 before LOW's NPV MMA Differential fell to the $500 that I like to see for a stock with 47 years of consecutive dividend increases. At that price the stock would yield 1.21%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 12.4%. This dividend growth rate is lower than the the 15.0% used in this analysis, thus providing a margin of safety. LOW has a risk rating of 1.50 which classifies it as a low risk stock.
LOW has been a consistent performer and continued to raise its dividend during the economic downturn. It has held up much better than its chief rival Home Depot (HD), which hasn't raised its dividend since November 2006. The stock would have rated a 4-Star Buy except for 3 years of negative cash flow between 2000 and 2002. I have followed LOW for some time, but have been hesitant to initiate a position in a cyclical company with such a low dividend yield. I calculate LOW's buy price at $19.95. For additional information, including the stock's dividend history, please refer to its data page.
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 held no position in LOW (0.0% of my Income Portfolio).
What are your thoughts on LOW?