Lowe’s Earnings: Another Year of Tepid Housing-Related Demand Weighs on Operating Margin

Key Morningstar Metrics for Lowe’s Companies

• Fair Value Estimate: $250.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Companies’ Earnings

Lowe’s Companies’ LOW fourth-quarter sales growth of 10.9% and adjusted operating margin of 9.0% were in line with previously implied guidance. For 2026, the company expects same-store sales that are flat to up 2%, supporting total sales of $92 billion-$94 billion, and adjusted operating margin of 11.6%-11.8%.

Why it matters: The housing market continues to see low turnover, stifled by higher mortgage rates. Lowe’s echoed Home Depot’s 2026 industry demand outlook, which ranges from down 1% to up 1%. This will temper Lowe’s ability to capture cost leverage, even if it modestly outperforms the market.

• This doesn’t prohibit Lowe’s from generating robust free cash flow ($7.7 billion in 2025). While we’d usually assume this would be spent on dividends and repurchases, we expect the firm will modestly raise its payout and pay down debt in 2026 to return to its 2.75 leverage target by 2027.
• Additionally, Lowe’s has capacity to fund productivity efforts. It recently completed its front-end transformation and is focused on improved inventory sequencing in 2026, exercises that are likely to enhance the consumer experience and brand intangible asset.

The bottom line: We don’t plan any material change to our $250 fair value estimate for wide-moat Lowe’s. We view the shares as fairly valued after a mid-single-digit post-earnings drop. We think mortgage rates would have to fall below 6% for an extended period to provide a catalyst for sales growth.

• With roughly 9% of sales coming from acquisitions (FBM and ADG) in 2026, gross margin is expected to see a drag of 75 basis points from mix. This will partially be offset by the better cost profile these firms carry as well as $1 billion in gains from productivity initiatives.
• Still, if Lowe’s pursues no additional tie-ups, we think it can return to operating margin expansion as integration efforts subside. Over the next decade, we see Lowe’s returning to high 13.0% operating margins, assuming normalized same-store sales growth of around 3.3%.