High Inflation is Crushing These 5 Stocks

4. Lowe’s Companies, Inc. (NYSE:LOW)

Number of Hedge Fund Holders: 65

Lowe’s Companies, Inc. (NYSE:LOW) operates as a home improvement retailer in the United States. On August 9, JPMorgan analyst Christopher Horvers lowered the price target on Lowe’s Companies, Inc. (NYSE:LOW) to $210 from $230 and kept a Neutral rating on the shares. The “earnings revision curve continues to deteriorate” for most of retail, with the “trifecta of pressures” on the consumer, such as rampant inflation, spending normalization, and slowing housing, combined with two years of abnormal full price selling and soaring costs, the analyst told investors. Reactions to downward estimate revisions “have been more positive lately,” which leads more companies to take down guidance comfortably, said the analyst.

According to Insider Monkey’s data, 65 hedge funds were bullish on Lowe’s Companies, Inc. (NYSE:LOW) at the conclusion of the first quarter of 2022, down from 72 funds in the prior quarter. Bill Ackman’s Pershing Square is the leading stakeholder of the company, with 10.20 million shares worth over $2 billion. 

In its Q4 2021 investor letter, Pershing Square Capital Management, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:

“Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential

Supportive macroeconomic backdrop

-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog

-COVID-19 causing millennials to enter the housing market

Positioned to grow EPS largely independent of market conditions

-Idiosyncratic revenue opportunities driving share gains

-Self-help initiatives catalyzing operating margin expansion

-Buybacks representing ~8% of current market capitalization planned for 2022

Multi-year business transformation with substantial earnings upside

-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing

-Potential to generate high-teens EPS growth over the next several years.

Lowe’s Companies, Inc. (NYSE:LOW) continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”