Real Recovery at Lowe's Awaits (LOW)

Lowe’s Companies Inc. (NYSE: LOW) managed to post a 10% gain in profits after its same-store sales in the last quarter rose 1.6%.  Net income rose to $832 million, which generated $0.58 EPS and total revenue grew 4% to $14.36 billion.  Thomson Reuters consensus data showed estimates of $0.59 EPS and $14.52 billion in revenue.

Here is the kicker that may act as a cap.  The company’s stance on the recovery is that there will not be a steady or consistent improvement in house improvement product demand until both the labor market and the housing market improve.

The balance to the caution is that Lowe’s shares were already on the junk heap.  At $19.59 on Friday’s close, the 52-week trading range is $19.15 to $28.54.  In short, shares are off by more than 30% since April.

Keep in mind that some of the “misses” being reported are highlighted due to rounding issues on consensus data for EPS.  Lowe’s guided to the mid-point of estimates with $1.38 to $1.45 EPS for 2010 versus a prior target of $1.37 to $1.47 EPS.  It also sees revenues up 4% rather than 5% to 7% for the year and same store sales are expected to grow at 2% now rather than 2% to 4%.  With Thomson Reuters estimates of $1.42, this should not be considered a disaster despite there not being any real upside.

8:00 AM UPDATE: Shares are now trading higher around $19.90 versus a $19.59 close on Friday.

JON C. OGG