Shares of home-improvement retailer
were rising Wednesday after the company shared its financial outlook for 2022.
) is expecting total sales next year to clock in between $94 billion and $97 billion, with comparable-store sales either declining 3% or falling flat next year. Earnings per share are expected to be between $12.25 and $13.
The company also said it expects gross margin rates to be flat compared with the previous year and an operating margin of 12.5% to 12.8%.
“We are confident in the long-term growth prospects for the Home Improvement market, and that we are making the right investments to continue winning with both our Pro and DIY customers,” said Marvin R. Ellison, Lowe’s chairman, president and CEO, in a statement.
The stock was up 1.2% to $255.56 Wednesday, after dropping as much as 4% in premarket trading. The stock turned around during the company’s livestream on Wednesday when executives suggested their current outlook was conservative and pointed to strong margin expansion, assuaging some concerns, said Wedbush analyst Seth Basham.
“While guidance for a 1.5% comp decline (at the midpoint) missed Street expectations by a wide mark, we sense investors were closer to flattish entering this update,” wrote Jefferies analyst Jonathan Matuszewski in a note. “Despite the underwhelming sales guide, ’22 operating margin expansion is ahead of expectations, and management sounded bullish on improved profitability thereafter.”
Wells Fargo analyst Zachary Fadem reiterated an Overweight rating on the stock, even though the 2022 sales and earnings per share guidance was below their current model.
“We view the LOW FY22 update with a bullish lens,” Fadem wrote in a Wednesday research note. For one, Lowe’s sales bar “appears achievable/beatable,” and second margin expansion will likely continue, “with or without the benefit of top-line growth,” he added.
Dave Denton, Lowe’s chief financial officer, indicated that the company’s 2021 fourth quarter was tracking ahead of their current guidance. Lowe’s issued guidance when it reported earnings in November. The company is forecasting $95 billion in sales by the end of the year, above what analysts were expecting at the time and its own forecast of about $92 billion.
The board also authorized a new $13 billion common stock repurchase program, which adds to the company’s previous repurchase balance of $7.3 billion for a total of around $20 billion.
Lowe’s shares have risen nearly 60% this year. Last week, Oppenheimer analyst Brian Nagel raised his price target for Lowe’s to $300 from $235. He rates the stock at Outperform.
While some analysts have expressed concerns over whether home-improvement stocks can sustain their current growth levels as the economy reopens, most are bullish on the stock. Of the 33 analysts covering the stock on FactSet, 24 gave it a Buy or Overweight rating, eight rated it a Hold, and one rated it a Sell.
Even if the home-improvement market contracts, Lowe’s management and analysts still see many upsides for the stock.
“Looking ahead we see ongoing home price appreciation, an aging housing stock, healthy consumer balance sheets, and mortgage rates near all-time lows serving as a foundation for demand,” Jefferies’ Matuszewski said.
Write to Sabrina Escobar at [email protected]