Lowe’s (LOW, Financial) had a terrific end to fiscal 2014. A solid growth across each financial metric is a clear indication that Lowe’s transformational efforts are gaining momentum. With the growth in housing industry, Lowe’s is seeing other macroeconomic fundamentals getting aligned for modestly stronger home improvement industry growth in 2015. The main reason such an impressive growth is a solid improvement in sales along with positive comps in all its key 12 product categories. For 2015, Lowe’s has robust action plan that will not only lead to sales growth but also add value to shareholder’s wealth. Let us have closer look.
Positive signs
Lowe’s is seeing positive signs indicating modestly stronger home improvement industry growth in 2015. It is gearing up to fetch this bright opportunity. It is now focusing on some key aspects to capitalize opportunities within the improving U.S economy. As Lowe’s is a company which excels in home improvement, it will be majorly focusing on improving its product and service offering to attract more customers. This will ramp up its sales leading to better financial performance. Customer preference is also a key aspect on which Lowe’s is focusing. In order to meet the long term customer commitments, the company is also developing Omni-channel capabilities which will lead to better customer satisfaction.
For 2015, Lowe’s is looking for driving its sales growth. To improve its margins further, it is focusing on reducing the costs. It is engaged in bringing in various innovations in its product offering which is expected to strengthen its market presence in 2015.
The company has an innovative sales service employee incentive program which also helps the employee to achieve the sales target leading to growth. This is a wise move by Lowe’s. Lowe’s continues to capitalize on an improving macro backdrop through its best in class sales operation planning process. This will lead to improvement in the relevance with the Pro also expanding customer experience design capabilities.
Lowe’s is trying to maintain good top line as well. To ensure a good top line, the company is engaged in driving productivity and profitability. Under this, Lowe’s is putting pressure on maintaining effective payroll hours. This is an important move by the company as the comp sales are increasing. However, Lowe’s is mainly targeting the spring selling season. As customers are now more interested in refreshing interior and exterior of their homes, Lowe’s wants to deliver best in class services to attract more customers. Further, it is carrying out promotional activities and also investing in Project Specialists. This relentless focus will drive Lowe’s performance in fashion fixtures, flooring, kitchen, appliances and millwork.
It is seeing great opportunities with its interior project specialist programs. It is exciting to note that this program has 15 points higher than the industry standard which clearly indicates the growing traction for it among the customers. Considering this improvement, Lowe’s is expanding this program further by 470 stores in 2015. This move by the company seems to strengthen Lowe’s position in the home improvement industry in future.
Conclusion
Now moving to the fundamentals of the stock, with a trailing P/E of 27.81 the stock looks reasonable while the forward P/E of 19.13 is clearly indicating solid earnings growth in the near term. It also has a impressive profit margin of 4.80% which can further lead it to gain better market share in future.
The home improvement industry is largely benefited by the recovery in the housing industry. The stock can also be a good long term holding as it earnings for the next five years are growing at a CAGR of 18.20% which is more than the industry average of 12.77%. Considering all these points I would like to suggest the investors to definitely include Lowe’s companies in their portfolio.
