2023-07-28 12:05:40 ET
Summary
- Lowe's is a sound investment choice with a strong record of dividend increases and a projected upward movement in stock price.
- Recent financial results were impacted by temporary factors, but Lowe's is expected to rebound as market conditions improve.
- The emergence of the inside bar for 2022 presents a strong bullish case for Lowe's.
Lowe's Companies, Inc. (LOW), standing as a prominent figure in the home improvement retail sector, garners attention as an enticing investment opportunity. This attraction is cemented by its unmatched record of continual dividend increases, a trait that remains unscathed, even in the face of ever-changing market conditions. While the first quarter of 2023 showed a minor decrease in financial performance, largely due to a downturn in the home improvement industry, projections indicate a strong upward movement in the stock price. This article presents a technical analysis of Lowe's stock price to predict its future trajectory and identify potential investment opportunities. The analysis reveals that the stock price exhibits a robust bullish trend, with indications of further upward movement.
A Sound Investment Choice Amid Market Volatility
As a renowned player in the home improvement retail sector, Lowe's presents an impressive investment proposition. Its distinguished record of uninterrupted dividend increases over 61 years provides a stable and potentially growing income source for investors prioritizing dividends. This unbroken streak of rising payouts, even amidst challenging market scenarios, positions Lowe's as a top choice for those seeking dependable dividend growth.
Recent fiscal results may initially come across as lackluster, given a 5.5% year-over-year decline in net sales . However, external factors such as a downturn in homebuilding activities, increasing interest rates, and a decrease in discretionary incomes, along with a delayed spring season, are significant contributors to this scenario. These unfavorable conditions are temporary and set to improve. Lowe's is poised for a rebound as the interest rate environment stabilizes and the pace of homebuilding picks up.
With a dividend yield of 1.81%, Lowe's outshines the S&P 500 index, which stands at a dividend yield of 1.54%. This superior yield, coupled with a notable 129.2% increase in quarterly dividends over the last five years, underscores the company's commitment to rewarding shareholders. With a projected dividend payout ratio of 38.75%, Lowe's retains ample resources for both dividend growth and reinvestment in business operations, debt reduction, and share repurchases.
In addition, the current valuation of Lowe's offers an inviting opportunity for investors. Despite a modest stock price increase over the previous year, the stock seems undervalued. Its forward price-to-earnings ratio stands at 17.57, well below the average of 21.63 for the home improvement retail industry . Given Lowe's impressive growth outlook and its prestigious reputation as a consistent dividend payer, it can be argued that the stock deserves a premium valuation relative to its industry counterparts.
Decoding the Long-Term Bullish Trend
The long-term trend for Lowe's stock over the past 37 years has displayed an unwavering bullish pattern, showcasing consistent growth and resilience, as shown in the chart below. There have only been two major price drops during this period, both of which were triggered by economic crises, but were quickly reversed due to the company's strong business model and strategic initiatives.
The first significant decrease occurred during the Great Recession in 2009 when Lowe's stock plummeted to a low of $10.02. This dramatic drop was driven by the global financial crisis, which prompted a sharp decrease in consumer spending and adversely affected the home improvement retail industry. As homeowners reduced renovation and construction projects due to economic constraints, Lowe's felt the pinch. However, as economic conditions started to improve, so did Lowe's fortune. Due to strategic initiatives such as streamlining operations and expanding its market presence, the company underwent a notable rebound. This upturn restored investor confidence and underscored the inherent resilience of Lowe's business model in the face of economic adversity.
Lowe's Yearly Chart (stockcharts.com)
The second major drop occurred during the COVID-19 pandemic in 2020. The market saw a significant downturn, and Lowe's was not spared, marking a low at $56.48. The uncertainty and economic disruptions caused by the global lockdowns triggered a shift in consumer behavior. Many people began prioritizing essential goods and services over home improvement projects. However, as lockdowns extended and people spent more time at home, there was a resurgence in the demand for home improvement products. Coupled with Lowe's effective e-commerce strategy and the introduction of curbside pickup services, the company managed to stage a robust recovery, underscoring its adaptability and resilience once again.
Interestingly, the price drop during the COVID-19 pandemic was quickly reversed, resulting in a strong wick formation on the yearly chart. This formation suggested that 2021 would be a strong bullish year for Lowe's, a prediction that held as Lowe's stock price soared. Despite the strong volatility observed in 2020 and 2021, a price correction was noted in 2022, taking the stock price down to a low of $165.77. This low point, however, was within the highs and lows of 2021 and resulted in the formation of an inside bar on the yearly chart. The emergence of this inside bar indicates a compression in price and the potential for a strong upside breakout if prices break above all-time highs.
Pinpointing Key Market Levels and Strategic Moves for Investors
Delving deeper into Lowe's market trends, key levels were identified using a Fibonacci retracement drawn from the Great Recession's low point of $10.02 to the all-time high of $254.70, as seen in the monthly chart below. In a strong bull market, prices often bottom out at the 38.2% retracement before advancing further. For Lowe's, the bottom of $165.77 is near this 38.2% retracement level, indicating a strong base for future growth. This position, along with strong bullish monthly candles for June and July, suggests a bullish pressure in the market and a potential for higher prices in the future. The RSI also provides support for this bullish case, as it settled at the mid-level of 50 when the stock price hit the 38.2% retracement.
Lowe's Monthly Chart (stockcharts.com)
Further evidence for a bullish case for Lowe's is provided by the weekly chart below. It reveals a strong bottom formation at lows of $165.77, $173.90, and $185.63, which is an indication of a potential rally. The neckline of this pattern, at $230, is considered a crucial level for the upside. With last week's successful closure above this key level, it suggests that the market is poised to reach all-time highs. Investors may, therefore, consider buying at current levels in anticipation of a future rally, reinforcing the strong bullish case for Lowe's.
Lowe's Weekly Chart (stockcharts.com)
Market Risk
An increase in interest rates may lead to a decrease in homebuilding activities, which could affect Lowe's sales. If the interest rate environment doesn't stabilize or if rates increase unexpectedly, this could pose a risk to Lowe's. Moreover, the home improvement retail industry is highly competitive. Lowe's success depends on its ability to stand out in this crowded market. If competitors offer more attractive products, prices, or services, this could impact Lowe's market share and profitability. Changes in regulatory environments, such as building codes or environmental regulations, could impact the demand for certain products or increase Lowe's operational costs.
From a technical perspective, the stock price displays a robust upward trend. However, if the stock price falls below $165.77, it would signal a potential downward shift in the market.
Bottom Line
In conclusion, the analysis highlights Lowe's as a resilient player in the home improvement retail industry, demonstrating adaptability to dynamic market environments and dedication to consistent dividend growth. Despite temporary headwinds impacting its sales, the company has maintained a steady financial performance, and with the expected improvement in market conditions, it is poised for an upswing. Lowe's current valuation represents a potential entry point for investors, promising robust dividend yields and significant potential for future earnings. Moreover, the technical analysis underscores a strong upward trend for Lowe's stock over the years, showcasing its ability to recover from market crises due to its robust business model and strategic initiatives. The stock price is witnessing a resurgence from the 38.2% Fibonacci retracement level. The robust monthly performance displayed in June and July points towards preparedness for a rally toward all-time highs, where a potential breakout is anticipated. For investors, this presents an opportune moment to contemplate buying at the existing levels, keeping an eye out for the upcoming price surge.
For further details see:
Buy Lowe's Bullish Momentum (Technical Analysis)