LOW - Embedded Expectations Analysis - 2019 12 10
Lowe's Companies, Inc. (LOW:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 26.5x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about their revenue, efficiency, and capital returns program.Specifically, management may lack confidence in their ability to improve efficiency in their Canadian business and migrate Lowes.com to the cloud by H1 2020. Furthermore, they may be concerned about the sustainability of recent revenue performance, and they may lack confidence in their ability to meet their sales guidance for 2019. In addition, they may lack confidence in their ability to drive operating income through reducing SG&A spend and sustain recent U.S. sales growth. Finally, they may be concerned about the sustainability of their capital returns program, and they may lack confidence in their ability to improve store efficiency.
Lowe's Companies is a home improvement retailer. The company provides home improvement products in lumber and building materials, appliances, seasonal and outdoor living, tools and hardware, fashion fixtures, rough plumbing and electrical, paint, millwork, lawn and garden, flooring, and kitchens categories. The company provides installation services through independent contractors in product categories, including appliances, flooring, kitchens, lumber and building materials, and millwork. The company also provides extended protection plans for various products within the appliances, kitchens, fashion fixtures, millwork, rough plumbing and electrical, seasonal and outdoor living, and tools and hardware categories.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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