Lowe’s Companies (NYSE: LOW) price action pulled back from its October peak, providing a second-chance opportunity for investors. The opportunity is to add to positions or create new ones at a discounted price. Tepid results cause the pullback, but it is unlikely to get much deeper because of the company’s operational quality and the outlook for next year. Headwinds remain for Lowe’s and other retailers, but its earnings report and others show signs of consumer resilience and strength. Reports from Lowe’s, Home Depot (NYSE: HD), and Walmart (NYSE: WMT) show consumers shy about big-ticket projects. However, spending on smaller items is solid and underpinned by digital commerce channels. 

The takeaway is that Lowe’s revenue is contracting in 2024 but less than expected, and growth is expected to resume in 2025.  Revenue is expected to grow at a low-single-digit pace, and the consensus figure is likely low. Earnings growth will be more vigorous in 2025 and is critical to the capital return outlook. Lowe’s trimmed the size of its share repurchases in 2024 to better align the return with its diminished cash flow. With increasing cash flow, the company can pay down debt, reverse the shareholder deficit, and accelerate repurchase activity. The bigger opportunity is that tailwinds are expected to form in 2025 because of lower interest rates and Trump’s policies, and Lowe’s is well-positioned to benefit from them.

Lowe’s Outperforms Expectations, Raises Guidance, Shares Fall

Lowe’s price pullback contradicts its results and guidance, which outpaced MarketBeat’s reported consensus. The company’s $20.17 billion in net revenue is down compared to last year but only by 1.5%, outpacing the consensus by 130 basis points. The strength is driven by positive comps in the Pro and digital segments, and storm demand aided the results. Even so, CEO Larry Ellison noted that consumer demand for smaller ticket projects remains high, helping to drive sales. 

Margin news is also mixed, with the margin contracting but less than expected. The company reported an 80-basis-point contraction in the gross margin and a smaller 25-basis-point contraction in the net earnings margin, leaving adjusted EPS at $2.89 and down $0.17 or 5.5% year over year. However, the adjusted EPS is also 350 basis points better than expected, allowing for a positive cash flow quarter, and clearing the outlook for balance sheet improvement and capital return. 

The only bad news is that the pace of the share buybacks has slowed. The company spent only $0.758 billion this year in Q3 compared to more than double last year but is still reducing the count. The 2024 activity has reduced the count by more than 3% and can be sustained at the current level. The dividend is safe at roughly 40% of this year’s earnings outlook and likely to grow in 2025 if at a low single-digit pace. 

Lowe’s Guidance Aligns With Analysts' Trends: LOW Is Undervalued 

Lowe’s guidance isn’t robust, but the full-year targets increased above the consensus figures to align with the analysts' trends. The analysts' trends include revenue, earnings, sentiment, and stock targets rising, with sentiment firming to Moderate Buy and the consensus price target near $275. The $275 price target isn’t a large gain, about 5% above the critical support target, but the revision trend and freshest targets show a rising conviction that this stock should be trading near $300. 

The price action in Lowe’s stock is favorable despite falling more than 3.5% after the release. The action is favorable because it shows the market is buying the stock at the critical support level and may not fall further. Critical support aligns with peaks set in 2022 and earlier this year and is a target for strong support that is unlikely to break. With previous sellers now expected to buy at this level, the odds are high that Lowe’s market will consolidate in the $260 to $280 range before moving to new highs sometime in 2025.