Construction Stocks

Lowe’s Companies Inc Valuation – March 2019 #LOW

Company Profile (excerpt from Reuters): Lowe’s Companies, Inc. (Lowe’s), incorporated on August 1, 1952, is a home improvement company. The Company operates approximately 2,370 home improvement and hardware stores. The Company offers a range of products for maintenance, repair, remodeling and decorating. The Company offers home improvement products in categories, including Lumber and Building Materials; Tools and Hardware; Appliances; Fashion Fixtures; Rough Plumbing and Electrical; Lawn and Garden; Seasonal and Outdoor Living; Paint; Flooring; Millwork, and Kitchens. The Company also supports the communities that focus on K-12 public education and community improvement projects. The Company serves its customers in the United States, Canada and Mexico.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LOW – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $84,769,831,466 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.98 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 184.80% Pass
6. Moderate PEmg Ratio PEmg < 20 25.07 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 23.25 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.98 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -53.50 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.22
MG Growth Estimate 11.58%
MG Value $133.62
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $61.19
MG Value based on 0% Growth $35.87
Market Implied Growth Rate 8.28%
Current Price $105.79
% of Intrinsic Value 79.17%

Lowe’s Companies, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.38 in 2016 to an estimated $4.22 for 2020. This level of demonstrated earnings growth supports the market’s implied estimate of 8.28% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Lowe’s Companies, Inc. revealed the company was trading above its Graham Number of $24.75. The company pays a dividend of $1.85 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 25.07, which was above the industry average of 20.99. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.77.

Lowe’s Companies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.77
Graham Number $24.75
PEmg 25.07
Current Ratio 0.98
PB Ratio 23.25
Current Dividend $1.85
Dividend Yield 1.75%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2019
Total Current Assets $14,228,000,000
Total Current Liabilities $14,497,000,000
Long-Term Debt $14,391,000,000
Total Assets $34,508,000,000
Intangible Assets $303,000,000
Total Liabilities $30,864,000,000
Shares Outstanding (Diluted Average) 801,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.00
Jan2019 $2.84
Jan2018 $4.09
Jan2017 $3.47
Jan2016 $2.73
Jan2015 $2.71
Jan2014 $2.14
Jan2013 $1.69
Jan2012 $1.43
Jan2011 $1.42
Jan2010 $1.21
Jan2009 $1.49
Jan2008 $1.86
Jan2007 $1.99
Jan2006 $1.73
Jan2005 $1.35
Jan2004 $1.13
Jan2003 $0.93
Jan2002 $0.65
Jan2001 $0.52
Jan2000 $0.44

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.22
Jan2019 $3.28
Jan2018 $3.34
Jan2017 $2.82
Jan2016 $2.38
Jan2015 $2.10
Jan2014 $1.72
Jan2013 $1.49
Jan2012 $1.42
Jan2011 $1.47
Jan2010 $1.55
Jan2009 $1.71
Jan2008 $1.75
Jan2007 $1.61
Jan2006 $1.33
Jan2005 $1.06
Jan2004 $0.85

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – February 2019
Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018
Lowe’s Companies Inc Valuation – June 2018 $LOW
Lowe’s Companies Inc Valuation – March 2017 $LOW

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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