Running head: Financial Research Report

Financial Research Report: Lowes Companies, Inc Kathy McGhee FIN 534 March 12, 2011 Strayer University

Financial Research Report

Review of Financial Research Report: This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment. The report is due in Week 10, in needs to be at least 5 pages, and it needs to cover the following topics: Company Overview: Conduct research and describe the company, its operations, locations, markets, and lines of business. Collect financial statements for the past three years, fiscal or calendar. Ratio analysis: Perform trend and ratio analysis on current and fixed assets, current and long term liabilities, owners equity, sales revenues, EBIT, net income, and earnings per share. Project these trends for three years. Stock price analysis: Research the companys common stock price for the past five years. Research the Standard & Poors Stock Market Index (S&P 500) for the past five years. Chart the price movement in the companys common stock against the S&P price movement. State and support your opinion on the companys common stock as an investment opportunity. References: Use at least five references and follow APA format when preparing the report.

Financial Research Report

Lowes Companies, Inc was founded in 1946 in Mooresville, North Carolina. The Lowe's story began in North Carolina when H. Carl Buchan, part owner of the North Wilkesboro Hardware Company, envisioned creating a chain of hardware stores. At the time, Lowes was a typical, small town hardware store selling everything from overalls, snuff to wash tubs, work boots, and even horse collars. Carl Buchan later bought-out his brother-in-law and partner, James Lowe, and foreseeing the post-World War II building boom, concentrated on selling only hardware, appliances and hard-to-find building materials. By eliminating wholesalers and dealing directly with manufacturers, Lowe's established a lasting reputation for low prices. Sales grew over time and additional Lowes stores opened in neighboring towns throughout western North Carolina. According to the Lowes Home Improvement website (2010), The company went public in 1961, and began trading on the New York Stock Exchange in 1979 (NYSE: LOW). During this time, U.S. housing starts soared and professional builders became Lowe's loyal customers, accounting for the majority of Lowes business. In 1982, Lowes had its first billion-dollar sales year, earning a record profit of $25 million. (para 4). No longer a low-profile company, Lowe's evolved from a regional hardware store operator into a nationwide chain of home improvement superstores bent on international expansion. The #2 US home improvement chain (after The Home Depot), Lowe's has about 1,700 superstores in 50 states and more than 15 locations in Canada and Mexico, as well as an ecommerce site (Lowes Companies, Inc, 2011, para 1). Lowes is also the seventh largest retailer in the U.S. With fiscal year 2009 sales of $47.2 billion, Lowe's Companies serves approximately 15 million customers a week and their current stock price is $26.46 (Investor Relations, 2010). Its stores sell some 40,000 products for do-it-yourselfers and professionals for home improvement and repair projects. Lowes carries product such as lumber, paint, plumbing

Financial Research Report

and electrical supplies, tools, and gardening products, as well as appliances, lighting, and furniture. Lowe's is the second-largest US home appliance retailer after Sears. The Lowes Companies, Inc is ranked number 42 among other Fortune 500 companies. Lowes Reports Fourth Quarter Sales and Earnings Results (2011), Lowes reported net earnings of $285 million for the quarter ended January 28, 2011, a 39% increase from the same period a year ago. Diluted earnings per share increased 50% to $0.21 from $0.14 in the fourth quarter of 2009. For the fiscal year ended January 28, 2011, net earnings increased 12.7% to $2 billion and diluted earnings per share increased 17.4 percent to $1.42. Sales for the quarter increased 3.1% to $10.5 billion, up from $10.2 billion in the fourth quarter of 2009. For the fiscal year ended January 28, 2011, sales increased 3.4% to $48.8 billion. Comparable store sales increased 1.1% for the fourth quarter and increased 1.3% for fiscal 2010 (para 1-2). Below are some figures from Lowes Balance Sheets and Income Statements from 2009, 2010, and 2011. According to

in millions $ Total Assets Total Liability Stockholder's Equity Revenue Gross Profit Total Net Income

Jan-11 33,699 15,587 18,112 48,815 17,152 2,010

Jan-10 33,005 13,936 19,069 47,220 16,463 1,783

Jan-09 32,686 14,631 18,055 48,230 16,501 2,195

The ratios, EPS and EBIT for past three years are shown below:

Financial Research Report

30-Jan-09 Current Ratio Quick Ratio Cash Ratio Debt-to-Equity Ratio EPS EBIT 1.153 0.130 0.031 0.185 0.151 3,804,000

01-Feb-08 1.120 0.138 0.036 0.216 0.207 4,750,000

02-Feb-07 1.271 0.179 0.055 0.159 0.387 5,152,000

Data from the past five years has been collected from Lowes Company and the S&P 500 Index. The data was then compared with each other. The pricing comparison is shown in the chart below:

Financial Research Report

The charting trend shows that it has underperformed in comparison to the S&P index. However, according to the charting pattern it has currently, buying signals are there but not too strong. If however, anyone is holding the stock, then we would recommend holding for a short term basis.

The subsidiary we are taken in concern is LOWE Canada. The operation of these subsidiaries began in December 2007. As mentioned earlier it has the company has operating stores in both, United States and Canada. LOWE Canada operates in the same way as its parent company. The organization maintains the same culture elsewhere. In total it has 15 stores in Canada. The customers can buy the goods online with the help of their website. The company is based in Toronto and Ontario. Each store averages over 20.4 million US dollars. In the subprime crisis on the real estate industry, almost all the major companies in the world were affected. LOWE is not a low profile company. It is ranked 47th in the Fortune 500 companies list. Still it has underperformed the S&P index. The major reason is that its business directly depends on the real estate industry which was hit most in the crisis. Even the subsidiary in Canada was affected deeply. The revenue stream dropped down significantly and they faced a huge loss. We therefore form a opinion that in the economic meltdown of 2008, the subsidiary company would not have been able to cover up for the parent company.

Financial Research Report

References:

Lessons from the recession: a management and communication perspective by Sarah Sanderson King, Donald P. Cushman, 2004 Investment: Capital theory and investment behavior by Dale Weldeau Jorgenson - Business & Economics, 1996

Financial ratios: how to use financial ratios to maximize value and successs by Richard Bull, 2008. Financial ratios: analysis and predictionbyMeir Tamar, 1978

Yahoo.finance.com

Investor Relations (2010). Retrieved March 5, 2011, from http://investor.shareholder.com/lowes/index.cfm Lowes Companies, Inc. (2011). Retrieved March 5, 2011, from http://www.hoovers.com/company/Lowes_Companies_Inc/rfstif-1-1njdap.html Lowe's reports fourth quarter sales and earnings results (2011). Retrieved March 5, 2011, from http://investor.shareholder.com/lowes/ReleaseDetail.cfm?ReleaseID=551811&openNews =true Our Heritage (2010). Retrieved March 5, 2011, from http://media.lowes.com/history/