Shares in home improvements firm Lowe’s (LOW) were looking smarter today after buying Foundation Building Materials (FBM) for $8.8 billion.
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FBM is a distributor of drywall, insulation, metal framing, ceiling systems, commercial doors and hardware to 40,000 large residential and commercial professional builders and developers. It has over 370 locations in the U.S. and Canada and revenues of around $6.5 billion.
Home Acceleration
Lowe’s said the deal would accelerate its Total Home strategy and offer its customers faster fulfillment and improved digital tools.
The company also recently closed a $1.3 billion acquisition of Artisan Design Group, a provider of design, distribution and installation services for interior surface finishes, including flooring, cabinets and countertops, to home builders and property managers.
“With this acquisition, we are advancing our multi-year transformation of the Pro offering,” said Marvin R. Ellison, Lowe’s chairman, president, and CEO. “It allows us to serve the large Pro planned spend within a $250 billion total addressable market.”
As can be seen by the revenue breakdown below the company is already making strong strides in the Pro market.
The FBM deal is expected to close in the fourth quarter.
Neil Saunders, managing director of GlobalData, said that the professional builder market provides a growth opportunity to Lowe’s as there’s a lot of spending in the segment. However, it does face competition from Home Depot (HD), which has also been busy with acquisitions, such as specialty building products distributor GMS for $4.3 billion.
Builder Battleground
“Pro is basically the new battleground for home improvement,” Saunders said. “Naturally, with two big giants in the arena, there are likely to be some bruising battles ahead. However, at this stage, we believe the market is big enough and fragmented enough to allow both players to extract some wins.”
Lowe’s also reported an adjusted profit of $4.33 per share for its Q2, beating Wall Street forecasts of $4.23 per share. Revenue totaled $23.96 billion in the period, which met Wall Street’s expectations.
Lowe’s raised its full-year sales outlook to a range of $84.5 billion to $85.5 billion. It previously predicted sales would be between $83.5 billion and $84.5 billion for the year.
“This quarter, the company delivered positive comp sales driven by solid performance in both Pro and DIY. Despite challenging weather early in the quarter, our teams drove both sales growth and improved profitability,” said Ellison.
Is LOW a Good Stock to Buy Now?
On TipRanks, LOW has a Moderate Buy consensus based on 15 Buy, 8 Hold and 2 Sell ratings. Its highest price target is $305. LOW stock’s consensus price target is $262.43, implying a 2.37% upside. These ratings and price targets will likely change as analysts update their coverage following today’s earnings report.
