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Lowe’s Companies, Inc. (LOW): Share Repurchases Are Killing This Company’s Future

If the company were repurchasing shares from free cash flow, this would show investors that they believe in the value of their shares. However, the fact that company’s need to run up debt and harm their balance sheet to buy shares smacks of desperation.

Real Value
While Lowe’s Companies, Inc. (NYSE:LOW) could theoretically turn around their operations, the company looks set up to fail compared to the competition. While Amazon certainly won’t win a prize for best value, their over 40% expected EPS growth rate speaks to the disruptor the company has become. As long as Amazon wants to sell items at cutthroat prices, everyone else better adjust accordingly. The company hasn’t figured out a way to knock Home Depot off in home improvement, but it seems apparent they have Lowe’s number.

Where Wal-Mart is concerned, the company gets 200 million visitors into its stores worldwide every week. The convenience of buying paint and small project needs from Wal-Mart, instead of making another stop at Lowe’s, is a problem Lowe’s Companies, Inc. (NYSE:LOW) can’t easily fix.

If investors are looking for an alternative, I would suggest the rule that if you can’t beat them, join them. Home Depot looks like the stronger stock, has more impressive revenue and earnings growth, and a more efficient model. The bottom line is that Lowe’s needs to stop chasing performance. Only by using free cash flow to fund dividends and share repurchases can the company improve their shareholder’s fortunes.

The article Share Repurchases Are Killing This Company’s Future originally appeared on Fool.com and is written by Chad Henage.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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