LOW - Embedded Expectations Analysis - 2022 01 21
Lowe's (LOW) currently trades near corporate and historical averages relative to Uniform earnings, with a 24.9x Uniform P/E (Fwd. V/E').At these levels, markets are pricing in expectations for Uniform ROA to improve to 22% in 2026, accompanied by 3% Uniform asset growth.
Meanwhile, analysts expect Uniform ROA to remain flat at 18% levels through 2023, accompanied by 1% Uniform asset growth.
If sustained going forward, these levels would imply a stock price closer to $190, representing approximately 25% equity downside for the firm.
Moreover, the firm's most recent earnings call suggests management may have concerns about margins, growth momentum, productivity, and PPI initiatives.
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
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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