Analyst Note| Jaime M. Katz, CFA |
We don’t plan any material change to our $183 per share fair value estimate for wide-moat Lowe’s after including the firm’s 2022 outlook into our model. While sales are set to flatline at $94 billion-$97 billion in 2022 (below our $99 billion forecast) profitability is expected to expand, with a projected operating margin of 12.5%-12.8% (above our 12.2% estimate). These metrics consider an industry that contracts at a mid-single-digit clip in 2022, with Lowe’s outperforming the market by 300-400 basis points. However, forecasting during the pandemic has been dynamic. Recall just a year ago, Lowe’s robust scenario expected 2021 sales of $86 billion, operating margin of 12%, and an industry that contracted 5%-7%, compared with management’s reiterated update for $95 billion in sales and a 12.4% operating margin in 2021 (in line with our current forecast).