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March 27, 2020, 8:26 a.m. EDT

Is There More Upside to Lowe’s Stock Price?

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Mar 27, 2020 (Market Realist via COMTEX) -- Amid the sell-off in the global equity market, Lowe's /zigman2/quotes/205563664/composite LOW +0.09% stock fell to $60 as of March 19--a fall of 52.7% from its 52-week high of $126.73. However, the stock has rebounded. As of Thursday, Lowe's was trading at $88.11, which represents a rise of 46.9% from its lows on March 19. On Wednesday, the US Senate cleared a $2 trillion financial package to improve the economy, as reported by The Washington Post . Today, the House will vote on the bill. The bill will help individuals and businesses during the downturn. So, the optimism led to a pullback in the broader equity market. Lowe's made a significant recovery in the last few days. Is there more upside to Lowe's stock?

Analysts' recommendations for Lowe's

Since the beginning of March, four analysts have lowered their target prices. Wells Fargo has slashed its target price from $140 to $90, while Instinet cut its target price from $132 to $100. Bank of America also cut its target price from $140 to $114. Meanwhile, Morgan Stanley reduced its target price from $140 to $120.

As of Thursday, analysts' consensus target price is $124.77. The target price represents a 12-month return potential of 41.6% from the closing price on Thursday. Wall Street is bullish on the stock. Among the 30 analysts, 73.3% recommend a "buy," while 26.7% recommend a "hold." None of the analysts recommend a "sell."

Valuation multiple

Since the beginning of this year, Lowe's has lost 26.4% of its stock value. The decline has brought the company's valuation multiple down. As of Thursday, Lowe's was trading at 13.5x compared to 18.2x at the beginning of this year. Currently, the company is trading below Home Depot /zigman2/quotes/208081807/composite HD -0.90% and above Williams-Sonoma /zigman2/quotes/202067350/composite WSM -0.44% . As of Thursday, Home Depot traded at a forward PE ratio of 18.6x, while WSM traded at 13.0x.

Meanwhile, as of March 26, Lowe's stock stood at 13.8x analysts' 2020 EPS estimate of $6.37 and at 11.9x analysts' 2021 EPS estimate of $7.40. These EPS estimates represent a YoY growth of 11.4% in 2020 and 16.1% in 2021.

On March 20, Lowe's board announced quarterly dividends of $0.55 per share to be paid on May 6 to shareholders on record as of April 22. The data represents an annualized payout of $2.20 per share and a dividend yield of 2.63% as of Thursday. On the same day, Home Depot and Williams-Sonoma had dividend yields of 3.3%, and 4.5%, respectively.

My take on Lowe's

In the last quarter, Lowe's beat analysts' EPS expectations. However, the company's sales fell short of analysts' expectations . The company continues to focus on improving customers' experience through implementing digital advancements, introducing new brands, and improving its supply chain to drive its sales. Also, Lowe's plans to launch loyalty programs across the US in the first half of this year. The loyalty programs will target professional customers.

I'm optimistic about these initiatives. Also, with Lowe's EPS expected to rise by double digits for the next two years, the company is trading at a relatively cheaper valuation multiple. I think that investors with a long-term perspective should look at buying the stock on every dip.

COMTEX_363895458/2648/2020-03-27T08:25:46

/zigman2/quotes/205563664/composite
US : U.S.: NYSE
$ 128.12
+0.11 +0.09%
Volume: 8.00M
May 28, 2020 4:00p
P/E Ratio
21.62
Dividend Yield
1.72%
Market Cap
$96.65 billion
Rev. per Employee
$230,029
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/zigman2/quotes/208081807/composite
US : U.S.: NYSE
$ 245.14
-2.22 -0.90%
Volume: 5.26M
May 28, 2020 4:00p
P/E Ratio
24.36
Dividend Yield
2.45%
Market Cap
$266.04 billion
Rev. per Employee
$261,993
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/zigman2/quotes/202067350/composite
US : U.S.: NYSE
$ 73.03
-0.32 -0.44%
Volume: 2.48M
May 28, 2020 4:00p
P/E Ratio
16.25
Dividend Yield
2.63%
Market Cap
$5.66 billion
Rev. per Employee
$204,014
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