Lowe’s Thrives By Wringing Profits From Appliances Sales

Making some money on appliances

Lowe’s is the world’s second largest retailer of home improvement products after Home Depot. Through its more than 1,700 stores spread across the U.S., Canada and Mexico, Lowe’s offers a wide range of home improvement products and installation services to individual home owners as well as professional builders.

We estimate that Lowe’s plumbing, electrical, & kitchen segment is the single largest value driver of the company’s operations, generating close to 33% of our estimated $25.87 stock value for Lowe’s, which is in line with the current market price.

Appliances Picking Up

Lowe’s reported its 3Q FY10 results showed positive results with YOY sales for the quarter increasing by nearly 2%. For the first nine months of fiscal 2010, Lowe’s reported sales increase of 3.5%. In addition to an increasing trend of do-it-yourself for tackling home improvements rather than hiring someone, an increase in market share in appliances, has helped to boost Lowe’s sales this year. The appliances segment is a part of our plumbing, electrical, & kitchen division for Lowe’s.

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Sears has been losing market share to rivals Lowe’s and Home Depot in the appliance segment which includes items such as refrigerators, washer-dryers, gas ranges and ovens. In addition to increasing its product range and opening more stores, Lowe’s gains leverage in attracting shoppers, especially female customers, as its stores are brighter, cleaner and better maintained.

Last year, Lowe’s share of the US appliance market rose nearly 4 percent to $4.54 billion, or about a fifth of the total, according to This Week in Consumer Electronics.

Currently, we estimate Lowe’s North America Plumbing, Electrical, & Kitchen Market Share to increase from 17% in 2009 to almost 19% in 2017.

…Focusing on Margins

With consumer spending and the housing market being slow to pick up, another initiative taken by Lowe’s is to improve margins. Lowe’s executives said they will focus on margin growth initiatives like offering more private label goods and making structural changes to become more competitive on prices on a local level. The company also has installed a new inventory management software to help individual stores keep better track of prices.

Plumbing, Electrical & Kitchen profit margins (EBITDA margin) declined from below 14% in 2006 to around 10% in 2009 due to increasing expenses and pricing pressure to maintain market share during the economic slowdown. We believe that as Lowe’s enters 2011 with consumers spending cautiously, the pricing war among home improvement retailers could put downward pressure on its margins. We forecast the decline in Lowe’s EBITDA margin to continue, with the Plumbing, Electrical & Kitchen EBITDA falling to about 9% by 2017.

However, the above short term trends (Lowe’s gaining market share in the appliance segment and its margin growth initiative) have the potential to help Lowe’s gain more market share as well as sustain margins for its Plumbing, Electrical, & Kitchen division in the long run.

If the Lowe’s North America Plumbing, Electrical, & Kitchen Market Share increases to around 20% by 2017, and the Plumbing, Electrical & Kitchen EBITDA Profit Margin stays at around 10% by 2017, there can be a 7-8% upside to our estimate for its stock price.

See our full analysis for Lowe’s here.

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Verizon To Vault $33 From Fatter Data Sales After 4G Launch

Verizon customers will spend more on data with 4G

Verizon is likely to launch its 4G LTE network in December 2010. This initial launch will cover 38 major markets including Boston, New York, Chicago, Los Angeles, San Francisco, Seattle and Washington D.C. However by end of 2013, Verizon plans to extend its LTE network to all of its current 3G coverage.

Verizon has a competitive advantage in the sense that it is ahead of AT&T in terms of LTE deployment (early market entry advantage) and its LTE 4G technology will offer better download speed than Sprint’s WiMax 4G technology (technological advantage).

Additionally, LTE-based smartphones may be available in early 2011, and so Verizon should gain from higher growth in its data revenue per subscriber leading to potential upside of 5% to our price estimate.

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Mobile Data Traffic Rising

The demand for mobile data has seen a tremendous rise due to the success of smartphones. Newer devices like tablet computers, netbooks and notebooks are further expected to aid mobile data growth.

In the U.S., mobile data traffic has picked up since 2008 dramatically ^[]. Studies suggest that average data revenue per user has doubled since the launch of Apple’s iPhone ^[]. Overall, the U.S. wireless data market grew by 25% in Q3 2010 compared to Q3 of 2009, amounting to $14 billion ^[]. The rapid growth in this area is likely to continue and faster networks like 4G will support continued growth.

As a result Verizon’s data revenue per user can potentially increase more than we forecast. We currently forecast this figure to increase from an estimated $17.50 in 2010 to a little under $25.00 by the end of our forecast period. However if this figure rises to $30.00 instead, as a result of explosive data usage growth, our price estimate increases by 5%.

You can modify our forecasts above to see how data revenue per subscriber can impact Verizon’s stock.

You can see the complete $31.69 Trefis price estimate for Verizon’s stock here.

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Better buy a value of at least $45 if sales per square foot Houle

A little more room if the sales efficiency jumps

Revenues per foot square for the United States Best Buy stores have decreased by a $953 estimated in 2006 to $905 in 2008, [1] partly driven by declining sales comparable store in 2008 and a below-average performance of new stores opened each année.Malgré, we expect revenue per foot square to pick up the future and Trefis member of forecasts of revenues per square foot suggest towards even more.

Best Buy is in competition with other large retailers such as Wal-Mart, Costco, and save.? We currently have an estimate price Trefis $ 41 Best Buy stock at the current price of $42 market.

Television sales represent an important part of Best Buy.Une units sold increased revenue is expected to offset the reduction in average prices for televisions, boosting sales revenues. Best Buy has been expanding its products and services with more than offers mobile web services as well as new Logitech and Sony associated with Google.Toutefois, a weak macroeconomic environment and sales increasing by discount retailers such as Wal-Mart and Costco can pose threats to revenues from Best Buy consumer electronics devices.

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Average Member Trefis per foot square for Best Buy United States income forecasts indicate an increase of approximately $912 $ 2010 in 1 233 by 2016, compared to baseline estimate an increase of $913 in 2010 to 1 059 Trefis $ at the end of the forecast period Trefis.Member estimates imply an increase of 10% for estimating price Trefis Best Buy stock.

You can drag the forecast trend-line above to express your own views and see Best Buy income per square foot for Best Buy, United States fellow sensitivity.

Our complete Best Buy stock analysis is here.

Notes:

1 Average income per Square Feet for Best Buy US stores is calculated as: (total number of stores) x (income / store) / (total square footage) .Best total Buy reports total number of stores by and place images in its annual deposits of the SCE.

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