Lowe's Companies (LOW)

Many have said that the housing market as bottomed out and the numbers in the August report show signs of it. Construction of single-family homes rose for the fifth straight month and the number of new building permits rose nearly 6%. New construction is up 37% from its low during the winter. Also, new home sales unexpectedly rose 9.6% in July. As the housing market starts to rebound from its prior collapse, companies like Home Depot and Lowe's that supply the material needed to build and furnish homes will start to show positive signs in sales and profits.

The housing slump and recession have not been friendly to home retailers like Lowe's and Home Depot. However, it seems as if Home Depot is taking a bigger hit than its competitor Lowe's. Since 2004, Lowe's has been consistently ahead of Home Depot in same store sales growth, both in positive and negative periods of growth. In addition, net revenues for HD have decreased substantially more than that of LOW (-7.8% compared to -0.1%) in 2008. Once the overwhelming industry giant, Home Depot's large warehouses are starting to lose its ground against Lowe's customer service. Home Depot used to make more than twice the profits Lowe's but now only enjoys a smaller (still comfortable) advantage.

An intensified focus on Installed Sales will tailor to the emerging class of DIFM customers and lead to increased sales and profits for Lowe's.

Lowe's will recover strongly once the housing market stabilizes and see its business prosper as the market turns upwards into its next cycle.

A successful entry into the Canadian market will bring Lowe's increased footprint and name recognition.

Although LOW reported a 24% profit loss in Q3 2008 (ended Oct. 31, 2008) when compared to the prior-year quarter, its results were better than what Wall Street analysts had expected. LOW earnings also did better than HD's 31% decline in earnings during the same quarter, reflecting Lowe's continued growth for larger market share. In addition, LOW is implementing a more conservative growth strategy to shield losses during the housing market slump and economic downturn. Combined with its solid past performance, successful operating strategies during tough economic times will contribute to LOW's long-term performance.