Lowe’s Companies, Inc.

The views expressed below are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.

LOW: NASDAQ

Lowe’s Companies, Inc. engages in the retail sale of home improvement products.[1] It is the second largest home improvement store in the U.S behind Home Depot. The company currently operates or serves 2,220 stores in the U.S, Canada, and Mexico.[2]

Investment thesis

As stated in our confirmation through research, we believe there is a strong backdrop for home improvement and an appliance replacement cycle. In our opinion, Lowe’s has the ability to improve inventory/supply chain management, and have better merchandising. The company is focused on technology and advertising spend. It is our opinion that the company can improve operating margins – which should generate free cash flow, and provide shareholder value by using this free cash flow effectively.

Confirmation through research

The average owner occupied home is 37 years old, and thus in need of remodeling and repairs.[3] Lower interest rates can help lead to a faster growth in remodels. In addition to the growth in remodels, there is also a clear appliance replacement cycle likely to come, as the last one was in 2005 and 2006.[4] The company has had an antiquated supply chain and is focused on modernizing distribution centers, transportation, and delivery.[5] They have a history of stock-outs, and are working on resolving that issue. Lowe’s is directing spending on technology, with a recent new hire who was the director of IT at Target[6] – she is redoing all the IT systems in house.[7] Finally, the company has a goal to improve operating margins to 12%,[8] which will come from reducing labor costs, and optimizing ad spending.[9] Lowe’s expects, with these much higher margins, to pay a dividend, and buy back a good amount of stock.[10]

Variant Perception

We don’t believe the market is assigning fair value to the business considering the backdrop, scale, focus on improvements, margin expansion, and opportunity to take the growing free cash flow and put it into dividends and share repurchases.