3. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 62
Lowe’s Companies, Inc. (NYSE:LOW)’s is the world’s second-largest home improvement retailer, with over 1,700 stores in the United States with the 2023 sale of its Canadian operations. Two-thirds of the products sold in the company’s stores are for maintenance and repair, while the remaining products are for decorating, remodeling, and upkeep of homes. Lowe’s focuses on retail do-it-yourself and do-it-for-me consumers, accounting for around 75% of sales, as well as commercial and professional business clients, accounting for 25% of revenue. Using information from the US Census and estimates of the market size provided by management, Morningstar analysts project that Lowe’s holds a high-single-digit proportion of the domestic home improvement industry.
As of fiscal 2024, the company is expected to generate sales of approximately $83 billion, making it the second-largest home improvement store worldwide, as per analysts. Lowe’s has managed to control costs while keeping its low-cost position by staying focused on the core principles of retail: omnichannel shopping, supply chain optimization, operational efficiency, and customer engagement. A flywheel effect is created when the company keeps a portion of its cost savings and transfers the remainder to its customers in the form of consistently low prices. Its wide moat rating is supported by scale-based cost advantages and intangible asset values, per Morningstar analysts.
Strong Q2 2024 earnings and good operational performance despite industry headwinds contributed to the stock’s over 21% gain in 2024. The company observed a mid-single-digit increase in comparable sales from Pro customers, despite a fall in DIY demand.
Revenue for the second quarter of 2024 was $23.6 billion for Lowe’s Companies, Inc. (NYSE:LOW), a decrease of 5.5% YoY. The revenue also came in $372.3 million short of analysts’ projections. YoY, comparable sales decreased by 5.1% as well.
Having said that, the management has faith that its company will rebound as soon as the market conditions improve. In its investor letter dated Q2 2024, Madison Investments likewise provided an optimistic outlook for the company. This is what the company says:
“At home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW), sales continue to be weak. The economic backdrop in housing is particularly interesting at the moment. On one hand, employment levels are healthy and home values remain resilient. On the other hand, housing turnover, which is essentially the number of homes that have been sold relative to the housing stock, is at historically low levels as homeowners are resistant to giving up low mortgage rates on their current home for a higher rate on a new home. Housing turnover is an important business driver for Lowe’s, so the depressed level of activity has weighed on its profits. However, over time we expect it to normalize and Lowe’s performance to improve.”
Ken Griffin’s Citadel Investment Group is one of the largest shareholders in the company, with 1,213,500 shares worth $267.53 million.
