November 28, 2021

McKenzielee Blog

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Lowe’s Earnings Beat After Home Depot Blows Past Q3 Expectations As Renovation Boom Continues

3 min read

Lowe’s (LOW) topped third-quarter estimates early Wednesday. LOW stock and larger rival Home Depot (HD) rose slightly, after strong Home Depot earnings and an upbeat October retail sales report sent both improvement giants soaring past add-on buy points.


Results from both big chains surprised analysts forecasting muted results, suggesting the home buying and renovation boom that’s lasted through most of the pandemic may not be quite ready to take a breather. Borrowing rates remain low, but rising labor costs and supply chain issues have driven price spikes for building materials. Analysts have been concerned that those high prices would urge consumers to think twice about remodeling projects.

The price of lumber had been declining after hitting highs earlier in the pandemic, but has ticked up again recently. Lumber prices spiked to more than $1,600 per 1,000 board feet in May 2021. Prices had come back down to the $500 range in the summer. But they have since climbed back above $600 over last month, hitting the $700 level in early October.

Homebuyers are also balking at sky-high home prices in many areas of the country. In addition, consumers are pumping the brakes on home spending as food and gas prices soar amid rising inflation.

Lowe’s Earnings

Estimates: Wall Street saw Lowe’s earnings per share of $2.34, 18% above the same period last year. Sales were expected to decline 1.4% to $22 billion, with same-store sales down 1.7%.

Results: Lowe’s earnings per share climbed 38% to $2.73 a share, while revenue unexpectedly rose 2.7% to $22.92 billion. Same-store sales grew 2.2%.

On Nov. 12, Lowe’s declared a quarterly cash dividend of 80 cents a share.

Outlook: Lowe’s sees full-year revenue of about $95 billion, slightly above consensus. It plans share buybacks of $12 billion.

Lowe’s Stock

LOW stock popped to a record 255.22 intraday, paring gains to up 0.4% to 245.75. Shares had climbed 4.2% to 244.69 on Tuesday, pushing above three-weeks-tight entry at 239.37. The three-weeks-tight offers existing investors a chance to add a few more shares. The buy zone extends to 251.34, but investors want to buy as close to the tight entry as possible.

Lowe’s relative strength line is trending upward. Its RS Rating is 86, while its EPS Rating is 90.

Over the past year or so, Lowe’s has focused its attention on professional contractors. In a recent survey, Lowe’s said these customers worked on around 11 projects per month in 2021, and it expects that figure to increase by 45% in 2022.

Home Depot Earnings

Estimates: FactSet forecast Home Depot earnings per share of $3.41, 7% above the year-ago quarter. Revenue was seen coming in at $34.88 billion, 4% higher than last year.

Results: Home Depot on Tuesday reported earnings per share up 23% in the August-October quarter, to $3.92, in a fourth straight earnings surprise. Revenue rose nearly 10% to $36.82. Total comparable sales increased 6.1%, with U.S. comparable sales rising 5.5%. Gross margins of 34.1% were down 5 basis points, year over year.

Home Depot Stock

Shares rose 0.7% to 394.87 on the stock market today. HD stock gapped up 5.8% to 392.43 on Tuesday. That gain sent Home Depot stock past a three-weeks tight pattern entry at 375.25. Shares on Wednesday exited the pattern’s buy range, which ran through 394.01.

In addition, the stock several weeks ago blew past a cup-with-handle buy point of 338.64, according to MarketSmith.

Home Depot stock’s relative strength line is trending up and near multimonth highs. Its RS Rating is 87 out of a possible 99. Its EPS Rating is 87, as it’s notched five straight quarters of earnings growth. However, both revenue and earnings growth have slowed in recent quarters.

Rival home-improvement stock Floor & Decor (FND) had spiked 6% Tuesday, after Warren Buffett’s Berkshire Hathaway (BRKB) disclosed it took a new stake in Floor & Decor in Q3. Shares fell 1.6% on Wednesday.

Please follow Adelia Cellini Linecker on Twitter @IBD_Adelia.


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