Updated Aug 18 at 11:17am ET.
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The yield on 30-year Treasury bonds, which helps set the cost for long-term loans, has climbed back to levels not seen in nearly two decades. This move was triggered by higher oil prices and stronger-than-expected manufacturing data, both of which suggest inflation and interest rates may stay higher for longer.
For a home improvement retailer like Lowe's, this is a headwind. When interest rates rise, mortgages and home equity loans become more expensive, which typically discourages homeowners from starting major renovation projects. While Lowe's is focused on growing its business with professional contractors, those pros ultimately rely on a healthy housing market to keep their project pipelines full.
Source: Bloomberg Markets and Finance
The average rate on a 30-year fixed mortgage edged up to 6.69 percent this week. Higher rates make it more expensive for people to buy homes, which usually leads to fewer people moving.
This matters because a lot of home improvement spending happens right after someone buys a house. If high rates keep people from moving, it delays the big renovation projects that drive sales. For a company like this, a frozen housing market means fewer customers starting major kitchen or bathroom remodels.
The company's foundation announced 8 million dollars in new grants for community and technical colleges. This brings its total spending on skilled trades training to 60 million dollars over the last three years. While this is a charitable effort, it aligns with the business goal of supporting professional contractors. The construction industry faces a shortage of skilled workers, and helping train more plumbers and electricians ensures there is a workforce available to buy and install the products the company sells.
Source: PRNewsWire
Analysts have kept a steady outlook on Lowe's following its recent earnings report. Most analysts, 31 of 51, rate the stock a buy, and the average target price of $265 suggests a potential 21% gain from today's price.
Management has a perfect record of clearing the bar they set for analysts over the last two years. They consistently deliver slightly more profit than expected, even as the housing market has cooled.
| Expectation | |
|---|---|
| EPS | $4.22 |
| Revenue | $26.13B |
