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Lowe's (LOW) is set to report first quarter fiscal 2019 earnings results before the opening bell Wednesday.

Like its company slogan, “Never stop improving,” Lowe’s efforts to narrow the performance gap with larger rival Home Depot (HD) has shown significant progress. In the fourth quarter the company recorded its narrowest comparable sales gap against Home Depot in some time. Over the past several years, Lowe’s operational initiatives to improve product merchandising and enhance the customer experience have grown both the top and bottom lines.

Lowe's first quarter revenues are expected to be driven by positive same-store sales growth, which could be offset by lost revenue from store closures and the company’s decision to exit some of its non-core businesses. The company operated 139 fewer units as of the end of the fourth quarter. The store reduction, along with other initiatives, are aimed at improving the company’s merchandising and overall operational efficiency.

Combined with the company’s investments in technology and distribution facilities, while lowering structural costs, Lowe’s is expected to realize improved profitability. Wall Street expect these initiatives to bear fruit in the second half of this year and in the years to come. As for Wednesday, the company’s recent initiatives will result in stellar Q1 numbers, particularly with better-than-expected earnings results just released from Walmart (WMT) and other retailers.

In the three months that ended March, the Mooresville, NC-based company is expected to earn $1.34 per share on revenue of $17.7 billion. This compares to the year-ago quarter when earnings came to $1.19 per share on revenue of $17.36 billion. For the full year, ending in December, earnings of $6.05 per share would rise 18.6% year over year, while full-year revenue of the $72.44 billion would rise 1.6% year over year.

There has been concerns that the housing market was on the decline. Despite looming evidence of a softening housing climate, investors will look to see if Lowe’s can continue its momentum and narrow the gap even more with Home Depot. After its fourth quarter results, Lowe’s shares rose 5% as it showed it took makes share from its larger rival. Morgan Stanley highlighted the fact that Lowe's "outcomped" Home Depot in January, gaining better-than 5.8% market share compared to 4.1% for Home Depot.

Lowe’s continues to enjoy solid traffic at its stores, driven by strong demand for building materials, garden equipment and supplies. Fourth quarter comp for the U.S. home improvement business soared 2.4%. On Wednesday analysts will want to see whether these trends can continue. The management’s efforts to enhance the company’s online capabilities will also be closely watched. From a valuation perspective, Lowe’s share price, which has risen 16% year to date, trades at just 17 times fiscal 2019 earnings estimates, which is not too expensive.

The forward P/E underestimates the company’s future earnings potential in light of its cost cutting and merchandising improvements. As the company continues to close the performance gap with Home Depot, while transforming the business, Lowe’s stock should continue to appreciate over the next 12 to 18 months.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.


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