Pros and Cons to Buying Lowe's Companies, Inc. (LOW) Stock

Lowe's Companies, Inc. (NYSE: LOW) is one of the nation's leading home improvement stores, battling with Home Depot ( HD) in a space with a consumer base eager to spend, regardless of what's happening in the economy.

When the bulls are surging, customers flock to home improvement stores to fix up a house for sale, build an addition or get the materials for all-new construction.

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And when the economy turns more bearish, customers are back at the home improvement stores for paint and supplies to improve what they have while they wait for better times.

How will Lowe's stock fare both now and in the future?

LOW stock at a glance. Lowe's is considered by Wall Street analysts as a leader in home improvement companies, with most calling LOW stock a "buy." Still, Lowe's is trading below its target prices and not everyone is on board with the company's recent financial performance.

Lowe's is trading at about $100 per share, with a consensus one-year estimate of $108.

The company's bottom line would seem to indicate LOW should move higher than $108. Lowe's recorded net sales of $68.6 billion in 2017, up from $65 billion in 2016 and up from $59.1 billion in 2015.

Some financial experts agree. Brian Nagel, an analyst at Oppenheimer, recently boosted his LOW stock price outlook from $115 to $140, while sticking to an "outperform" rating on the company. In a research note, Nagel says that Lowe's is his "top pick" and that the "stars are aligning" for home improvement giant.

Lowe's has perennially trailed its chief competitor, Home Depot, in terms of stock prices, but its stock price is up almost 8 percent so far in 2018.

Recent quarterly performance seems to be fueling ongoing share price growth. "The last quarter was great," says J.P. Gravitt, chief market strategist at Market Realist. "The earnings profile isn't great, but the next three quarters should bring 20 percent or more [in] earnings growth."

A 1.9 percent dividend rate is "decent", as well, Gravitt says. That dividend is expected to grow significantly by 2022, analysts say.

Pros to buying LOW stock. No doubt, the spotlight is not only on Lowe's at the height of the U.S. home improvement season, it's also shining brightly (or harshly, depending on how you view Lowe's) on the new chief executive officer, Marvin Ellison.

Ellison has only been on board since July 2, but he's running a buzzsaw through the home improvement retailer's corporate hierarchy. Case in point -- Ellison is blowing up key management roles, eliminating the company's chief operating officer, chief customer officer, and chief development officer positions.

Formerly the CEO of J.C. Penney Co. ( JCP), Ellison has a track record of squeezing every dollar he can in savings. At J.C. Penney, the company retired $1.4 billion in debt during his tenure and helped steer the flailing retailer into a stronger financial position.

Lowe's is hardly struggling -- its net sales have risen by $8 billion in the past two years. But Wall Street loves a bean counter and there is growing sentiment that Ellison is in the right place at the right time for Lowe's investors.

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While time will tell on that front, there are some encouraging signs for Lowe's stock price going forward.

One interesting metric on Lowe's comes from Orbital Insight, which tracks parking lot volumes at high-profile retailers via satellite technology. In its most recent coverage of home improvement outlets Lowe's, Home Depot, Sherwin Williams ( SHW) and Lumber Liquidators Holdings ( LL), Lowe's has seen parking lot volume rise by 2.2 percent since the third quarter of 2017, compared to negative or flat growth for its competitors over the same period.

The overall U.S. economy may be also pumping fresh air into Lowe's revenue picture this year. Home values are up and homeowners seem to be getting aggressive in putting some cash into home renovations.

"Residential real estate values here in the Atlanta area have risen so much in 2018 that consumers are confident," says Jordan Barkin, a Realtor at Harry Norman Realtors, an affiliate of Christie's International Real Estate, in Atlanta.

"Demand is nearly outpacing supply, inventory is low, and clients are willing to purchase a home and then perform upgrades. The topic of do-it-yourself home repair usually arises in meetings I have with my clients," Barkin says. "Based on residential real estate market trends and my client interactions, this should continue to be a good year for home improvement stores such as Lowe's."

Cons to buying LOW stock. Robert Martin, an analyst who tracks LOW for InvestorPlace.com, states in a recent research post that Lowe's has experienced a "rocky ride" of late, noting that the stock still hasn't capped its 52-week share price high of $107.

First-quarter earnings didn't meet analyst expectations -- a scenario not uncommon to Lowe's, as the company has missed earnings expectations for three of the past four quarters, Martin points out. Forward-moving earnings growth is erratic, as well, with 2018 a particularly rough year, with an expected 15 percent year-year sales decline. A sales decline of 3 percent is expected for 2019, analysts report.

For those reasons primarily, Martin says the company's "growth and potential for unlocked value has already been baked into its overall uptrend."

Additionally, "revisions for earnings estimates are a mixed bag, sales growth is in the red, and earnings growth has consistently been less than the company promised," Martin says.

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The bottom line. With fresh blood in management, and a roaring economy at its back, Lowe's should be a decent long-term play for value-minded investors.

Of 33 Wall Street analysts who track the stock, 79 percent call LOW stock a "buy", while the other 21 percent tab Lowe's as a "hold." No analyst has placed LOW in the "sell" category, and that outlook from industry professionals who track the stock should spell opportunity for investors looking for a decent, 10 percent-sized return on Lowe's share price over the next year.

Brian O'Connell is a contributing financial writer for U.S. News & World Report. A former Wall Street bond trader and the author of two best-selling books; "The 401k Millionaire" and "CNBC's Creating Wealth", he has 20 years experience covering business news and trends, particularly in the financial, technology, political and career management sectors. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more. Visit his web site at: https://brianoco.contently.com/. Or, visit this Amazon.com link for a list/review of some of his book titles. Reach out to him on LinkedIn.