Lowe’s Earnings: Investment in Pro Expansion Bolsters Sales Potential and Brand in Tough Environment

Key Morningstar Metrics for Lowe’s

• Fair Value Estimate: $250.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Earnings

Lowe’s LOW third-quarter results included same-store sales growth of 0.4% and adjusted earnings per share of $3.06, up 6%. In the quarter, the firm closed its $8.8 billion acquisition of Foundation Building Materials, bolstering its interior building product offerings for professional customers.

Why it matters: Lowe’s has pursued growth into white-space categories, most recently targeting the large pro cohort with its FBM tie-up. However, this growth won’t supersede the performance of do-it-yourself and small pro customers, which is closely tied to stagnant housing turnover.

• Lowe’s called out affordability and uncertainty as pressures on consumer confidence. However, it also pointed out that lower rates could encourage home equity loans, given homeowners’ high equity levels, offsetting the downside from consumers locked into low-rate mortgages.
• We don’t see home equity financing as a sure thing, as evidenced by the firm’s 3% decline in same-store transactions. In our view, lower discretionary spending due to uncertainty may continue, given changing tariff policy and inflation (average ticket rose 3.4%).

The bottom line: We expect to hold our $250 fair value estimate for wide-moat Lowe’s as the housing market remains stalled and the higher sales growth opportunity from FBM is offset by its lower profitability. We view the shares as 7% undervalued after their 6% postearnings pop.

• Investors saw Lowe’s guidance for 2025 as more favorable than Home Depot’s. Lowe’s lowered its operating margin outlook by just 10 basis points (to 12.1%) and held adjusted EPS within its original range at $12.25, while Home Depot lowered both metrics by wider margins.
• Still, as with Home Depot, the addition of a specialty distribution business is likely to weigh on margin expansion through 2026, holding the metric below 12%. We think this pressure will be offset by the opportunity from line expansion, leading to average sales growth of nearly 4%.