The pandemic induced stay-at-home practice is encouraging home renovation and maintenance activities. This certainly is turning out to be an upside for certain home improvement market players, including Lowe's Companies, Inc. LOW. Moreover, the company’s robust digital offerings and merchandise strategies are yielding, keeping investors interested in the stock.
Lowe’s currently has a Zacks Rank #3 (Hold). The stock has surged nearly 30% in the past three months compared with the industry’s rise of 19.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
That said, let’s take a look into some of the aspects that are acting as the aces in Lowe’s stack.
Home Improvements Market Looks Bright
With majority time being spent indoors due to the pandemic scenario, there is a rising focus on making homes an enjoyable and comfortable space. Home DIY projects for remodeling, decorating and maintenance of furniture and fixtures are being widely undertaken.
Growing inclination toward home improvement projects is quite visible in Lowe’s second-quarter fiscal 2020 results. Comparable sales (comps) for the company’s U.S. home-improvement business increased 35.1% in the second quarter, following an increase of 12.3% in the first quarter.
In the reported quarter, comps gained from sturdy project demand from DIY and pro customers across channels, product categories and geographies. It saw comparable-sales growth of more than 20% across all its merchandising divisions, while all the U.S. geographic regions posted comparable-sales increase of at least 30%.
An insight from ReportLinker highlights that the global market for Home Improvement Products is expected to reach $1 trillion by 2027, growing at a CAGR of 3.4% over the period 2020-2027. The Home Improvement Products market in the United States is estimated to reach $218 billion in the year 2020. We expect Lowe’s to keep gaining from such trends in the near term.
Digitization is a Key Catalyst
The boom in digital transactions amid the pandemic is a treat for many retailers. Sales at lowes.com increased 135% in fiscal second quarter, as the company’s pro and DIY customers increasingly shopped online. This drove online penetration to 8% of sales.
Further, the company is on track with boosting its omni-channel capabilities. After completing the transition of lowes.com to the cloud, the company is now focusing on accelerating front-end work and drive customer-facing capabilities. These capabilities include online-delivery scheduling and order tracking, a customized homepage, simplified search and navigation as well as enhanced online product offering to boost customer experience.
We expect that the aforementioned drivers will continue to fuel the company’s top line. Management is also pleased with the progress of its retail-fundamentals and merchandising initiatives, especially toward catering to the needs of pro-customers.
Other Retail Stocks to Bet On
Big Lots BIG has an expected long-term earnings growth rate of 7.1% and sports a Zacks Rank #1.
Sprouts Farmers Market SFM has an expected long-term earnings growth rate of 9.2% and a Zacks Rank #2 (Buy).
Dollar General DG, also a Zacks Rank #2 stock, has long-term earnings growth rate of 12.5%.
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