Lowe’s Companies: When LOW Calls are Courting the Highs

The stock market seems to be on track to end this year on a bullish note as the S&P 500 continues making new highs above 2050. Today, we latch on to that bullish momentum as we explore the options of Lowe’s Companies, Inc. (NYSE:LOW) in anticipation of its earnings release tomorrow.

Lowe’s with its market capitalization of $57.79B is the world’s second largest home improvement retailer.  The company serves homeowners, renters and commercial business customers. Individual homeowners and renters complete an array of projects and vary along the spectrum of do-it-yourself (DIY) and do-it-for-me (DIFM). Commercial business customers include those who work in construction, repair/remodel, commercial and residential property management, or business maintenance professions.

What Can We Expect from Lowe’s Tomorrow?

As I have mentioned earlier, Lowe’s is set to release its third quarter (Q3 2014) results tomorrow and investors and traders are on the lookout for the most advantageous position to take on the company’s shares. You will remember that Lowe’s recently (last Friday) declared a quarterly dividend of $0.23 per share to make a $0.92 dividend on an annualized basis and to mark a dividend yield of 1.57%.

I am optimistic about the quarterly results that Lowe’s will report tomorrow because of the strongly optimistic analysts’ expectations on the stock. For instance, Lowe’s revenue is expected to grow by 4.40% this year and by another 4.10% next year. The company’s earnings are expected to increase by 21.80% this year, 19.80% next year and by a compound annual rate of 16.73% for the next 5 years.

In addition, we can be optimistic about what the morrow holds based on the strength of Low’s last reported financials. You will remember that Low’s last reported revenue showed a 16% increase to $13.54 from $11.66B and its earnings surged 20% from $0.48 per share to $0.58 per share.

Interesting Stock Performance

LOW Chart

The chart above shows how the shares of Lowe’s have traded within the last one year. You will observe that the stock is entombed between a 52-week low of $44.13 and a 52-week high of $59.16. At the current $58.21 trading price, shares of Lowe’s are trading at a 31.90% premium to the 52-Week low and at a 1.63% discount to the 52-week high.

Some other interesting points to know about the performance of Lowe’s stock includes the fact that the stock has recorded 19 new highs in the last one month. In addition, the stock is up 12.51% in the last month even as it trades above its 20, 50 and 200-day moving averages. In fact, the stock has set new averages as its 200 day moving average moved up by 0.4% while its 200-day moving average climbed by 0.5%.

I am particularly conscious of the stock’s RSI indicator that has not spiked wildly at the wake of the most recent surge in the share price. Lowe’s currently sports an RSI of 66.68 as shown in the chart, which suggests that the stock has some upside potential ahead before it enters overbought territory.

How to Trade LOW Options

I am optimistic about the prospects of Lowe’s Companies, Inc. and thus, I am camping with the bulls by recommending call options. The LOW Jan 2015 60.000 call (LOW150117C00060000) looks particularly attractive at an asking price of $1.25 and you should be prepared to exit at $2.50 once shares of Lowe’s cross the $61.25 breakeven price.

— Daily Option Alerts

You May Also Like

About the Author: Daily Option Alerts