Lowe's Companies Inc.LOW

Morningstar Rating

Stock Research and Analysis

by Mike Taggart, CFA

Lowe's is a tenacious competitor. The firm successfully took on its much larger rival over the past decade via aggressive expansion into Home Depot's HD markets, competing on the basis of its superior operating model and customer service. However, with Home Depot once again focused exclusively on its retail stores, the competition is set to intensify. Read more

Bulls Say

Lowe's massive scale and efficiency combine to create one of the few wide economic moats in the retail industry, in our opinion.

Despite the economic downturn, consumers are still spending on home maintenance and home appearance projects.

Lowe's is targeting its commercial business clients (CBCs) by appointing district CBC specialists and installing a new program to ensure competitive pricing.

Even with the economic head winds, in late 2009 management reported that only 53 stores were running at cash flow negative positions and only a handful of stores were facing possible closure.

The firm is moving to increase its market share of installed sales. By centralizing the installation program around one associate (a de facto consultant), Lowe's hopes to make the customers' experience smoother from ordering, to scheduling, to follow-up. Read more

Bears Say

Home-improvement retailers could continue to struggle if consumer spending in North America doesn't stabilize.

Lowe's has several proprietary brands that are highly profitable. Defective products would not only tarnish these brands and harm profitability, but could also have a negative affect on Lowe's reputation.

Lowe's is already so efficiently operated that incremental efficiencies pale in comparison to the turnaround and reinvestment efforts occurring at Home Depot. Read more

Strategy

Because it already has such a large base of stores (about 1,700), Lowe's market strategy has changed from gaining share via new stores to gaining share via increased productivity of existing stores. To gain a larger portion of customers' total project spending, Lowe's has expanded its installation and commercial businesses, as well as honed associates' ability to cross-sell project items. Read more

Management

Robert Niblock, who previously served as president of Lowe's, became CEO and chairman in 2005 after his predecessor retired. In 2008, Niblock was given about $7.9 million worth of total compensation, with the bulk being in stock and option awards. We believe executive compensation is reasonable, given the company's history of impressive operating results. Read more

Profile

Lowe's is the second-largest home-improvement retailer in the world and operates approximately 1,700 stores throughout the United States, Canada, and Mexico. The company's stores offer products and services for home decorating, maintenance, repair, and remodeling. Read more

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