Lowes - Positive Earnings? (NYSE: LOW)

The second largest Home Improvement Retailer in the world,  Lowe's Companies, Inc. (NYSE:LOW), will report third quarter earnings on Monday, November 16th, before the market opens with a conference call to follow at 9:00 AM Eastern Standard Time.  Analysts expectations are that the company will report an earnings per share of $0.24 on top line revenue of $11.28B.

While Lowes has had two negative earnings surprises in the last four quarters, most expect they will beat this time out.  For one thing, analysts are being overly cautious these days and for another, there are indications that the housing market has actually begun to improve.  Toll Brothers -- one of the nation's leading builders of high end luxury homes -- reported a 42% increase in orders this quarter compared to the same quarter last year. In addition, while consumer sentiment data remains dismal, consumer buying behavior appears to be improving.  Retail sales for the month of October increased more than anticipated, even after factoring out "cash for clunker" auto sales.  As you should know, Lowes sells a variety of consumer products not directly related to home improvement building materials.  They feature a full line of household cleaning supplies, gardening supplies, and some small electronic appliances.  Since there is frequently a gap between what people say they will do and what they actually do, Lowes will benefit if this uptick in consumer spending increases.

If you like to follow the "herd" consider that Lowes appears to be in an upward bullish trend, at least in terms of sentiment.  There are currently 13 analysts with a strong buy rating on Lowes -- compared to only 11 for arch rival Home Depot -- and 2 with a Buy rating and 3 with a Hold rating.  Only one analyst rates Lowes as a Sell.  But if you compare the trend in Lowe's stock price against that of Home Depot over the last three months you'll see Lowe's share price has declined almost 9% while Home Depot's increased a modest 0.63%.

Some experts feel that Home Depot has taken advantage of its sheer size to weather this Great Recession better than rival Lowes.  Unlike Lowes, Home Depot has beaten analyst estimates for the last four quarters.  If you are a believer in the contrarian view, Home Depot might be the better buy despite the huge bullish sentiment from the analyst community for Lowes.  This sentiment is also borne out by the dramatic decline in short interest in Lowes shares.  However, Home Depot shares experienced a similar decline in short interest, so call it a draw.  While both Home Depot and Lowes appear to be well-positioned to take advantage of a recovery in housing and in the over-all economic climate, because of its size, Home Depot may be the better play right here.