Earlier this week, I wrote and analyzed The Home Depot, Inc. (NYSE:HD), which saw an earnings beat of analyst estimates and reaffirmation of full year results.  However, the Home Depot release was overshadowed by potentially large costs associated with the cyber attacks.  All in all, Home Depot’s good quarter was fueled by an improving and strong US homebuilder sentiment and the rise of employment.  Today, we saw a rival of Home Depot in the home improvement retail space report third quarter earnings, Lowe’s Companies, Inc. (NYSE:LOW).

Lowe's Companies

Lowe’s Companies’ earnings

Lowe’s Companies, Inc. (NYSE:LOW) reported earnings of $0.59 earnings per share on revenue of $13.7 billion.  Analysts polled were looking for earnings per share of $0.58 on revenue of $13.54 billion.  Lowe’s additionally raised full year 2014 results to estimate total sales coming in between 4.5% and 5%.  Additionally, same store sales are predicted to come between 3.5% and 4%.  Total earnings per share for the full year is now set at $2.68.

Lowe’s shareholders also got support with the company’s $900 million stock repurchase program and $229 million in dividends paid.  The stock soared in early trading on Wednesday, up over 5%.

Overall, we are seeing similarities and themes between Lowe’s and Home Depot’s earnings.  Both companies rely on strong overall macroeconomic fundamentals, particularly in the real estate sector and strong employment.  The idea being here is that during times of economic strength, there will be more jobs available for people to work, lowering unemployment and raising spendable money in households.  As people have more disposable income, they are able to purchase a mortgage and buy a house.  These individuals combined with strong US homebuilder sentiment (new houses need to be furnished) means strong business environment for home improvement stores.

Lowe’s Companies is economically sentive

I think Lowe’s Companies, Inc. (NYSE:LOW) continues to perform well into next year, but keep an eye out on any movement from the Federal Reserve and just overall US economic health, which can be determined by looking at various government reports.  Lowe’s is economically sensitive and the wrong conditions could hurt the stock.  So far in 2014, Lowe’s is up over 20% year to date and up nearly 17% in the past year.  Lowe’s was able to beat third quarter earnings estimates by analysts and then raise full year guidance in sales growth, earnings.  Analysts see a strong 2015, which can be determined by an earnings forecast of nearly 20% growth, compared to 27% this year.  However, there are a variety of economic risk factors that could come into play next year, such as rising interest rates.  Rising rates would make loans and mortgages more expensive, but what affect does that have on companies such as Lowe’s?  If home sales demand falls, home improvement is likely to follow, be sure to watch out for potentially rough economic conditions next year.

Disclosure: None