LOWES COMPANIES INC (LOW) stock intrinsic value fair value estimate & owner earnings analysis

Lowe's is the second-largest US home improvement retailer, with roughly 1,700 stores plus a growing online business, selling to do-it-yourself homeowners and to professional contractors (Pros). In fiscal 2025 (year ended January 30, 2026) it moved further into Pro supply by buying Foundation Building Materials (FBM, closed October 9, 2025, a distributor of drywall, ceilings and related products in the US and Canada) and Artisan Design Group (ADG, an installer of interior finishes for home builders) for a combined $10.1 billion, funded largely with new debt. Sales were $86.3 billion in fiscal 2025; comparable sales rose just 0.2%, with average ticket up 3.0% and customer transactions down 2.8%, reflecting a housing market where home sales and big remodels remain depressed. How we measure earnings. We start from operating cash flow, remove swings in inventory, payables and other working capital, and subtract stock-based pay and the capital spending needed to maintain the store base (about 2% of sales; only a small slice tied to sales growth is treated as expansion). One judgement matters: under current lease accounting, Lowe's adds back about $570 million a year of store rent as a non-cash item, while the matching rent payments sit inside the working-capital lines. Because store rent is a real, recurring cost, we charge it in full. On that basis, owner earnings were $12.49 per share in fiscal 2025, versus $12.04 in 2024, $13.18 in 2023 and $14.11 in 2022. Large one-time charges in earlier years, such as the 2018 goodwill write-off, the 2022 loss on selling the Canadian retail business and debt-repurchase premiums, are added back as sunk costs. Because we value the business before its lenders and then subtract the debt separately, we add back cash interest (about $1.5 billion a year). That gives business cash flow of about $8.5 billion, or $15.15 per share, in fiscal 2025. Starting level. We use the median of fiscal 2021 to 2025, which equals $15.15 per share, or about $8.5 billion on today's 560 million shares. That period covers the turnaround under current management, the pandemic remodelling boom and the three-year housing slump that followed, so it neither assumes the boom returns nor that the slump is permanent. Earlier years describe a lower-margin business from before the turnaround that began in 2018, when Lowe's closed Orchard Supply and later left Mexico. Business cash flow grew 3.5% per share in fiscal 2025, and the first half of fiscal 2026 ran about 5% ahead of the prior year as FBM and ADG were included for a full period. We assume 3% for the coming year, which is below the latest actual growth rate. Base case (median). Year one rises 3% to about $8.7 billion, a gain that is already paid for: a full year of FBM and ADG. After that, cash flow grows 2% a year for nine years, below Lowe's long record of passing cost inflation through to the average ticket (ticket up 3.0% in fiscal 2025; sales grew about 2.6% a year from 2006 to 2015, through the housing crash). That reaches about $10.4 billion by year ten. We credit no gains in market share, profit margins, new stores or housing recovery. After year ten we hold cash flow flat in dollars with no further growth. What keeps it going is the national store network and the two-player US home improvement market Lowe's shares with Home Depot, supplying repairs to an ageing housing stock that needs them regardless of the cycle. The business is worth about $167 billion. After net debt of about $31.7 billion, the shares are worth about $242 each. Bear case (10th percentile). Home sales and remodelling stay depressed, store transactions keep falling as they did again in fiscal 2025, and tariff costs on goods imported mainly from China and Mexico squeeze margins. Business cash flow falls about 15% to a trough of roughly $7.2 billion over two years, similar to how much Lowe's operating cash flow fell in the 2008-2010 housing collapse. It then recovers only to about $7.6 billion and stays flat through year ten. After that it shrinks 1% a year as Home Depot's push into Pro distribution and online rivals take share. FBM earns less than Lowe's paid for it. Even at the trough, cash flow covers interest of about $1.6 billion more than four times, so refinancing is not a threat. The business is worth about $117 billion. Less $31.7 billion of net debt, that leaves about $152 per share. Bull case (90th percentile). FBM and ADG perform as acquired and year one grows 5%, the pace already seen in the first half of fiscal 2026. Growth then runs at 3.5% a year through year ten, a little below Lowe's ten-year sales growth of about 3.9% a year, and 2% a year for the following decade before holding flat. We assume no margin expansion and no housing rebound beyond that record. The business is worth about $208 billion. Less $31.7 billion of net debt, that leaves about $315 per share. Debt. At July 31, 2026, Lowe's owed about $37.6 billion, including finance leases. Shareholder equity on the balance sheet is negative because years of debt-funded buybacks cut the share count by about 40% over the past decade. We subtract about $1.4 billion of cash beyond what the stores need. Much of Lowe's long-dated debt was locked in at fixed rates well below 6%, for example $5.6 billion due 2046-2050 at 3.78% and $9.1 billion due 2031-2035 at 4.26%. That cheap borrowing is worth about $4.5 billion to shareholders over the remaining life of the bonds, so net debt comes to about $31.7 billion, or roughly $57 per share. Roughly $10 billion of notes at an average 3.29% mature by fiscal 2030 and will likely be refinanced at higher rates. We credit the low coupons only until each bond matures. What changed since our last look. Our earlier estimate (bear $72, base $163, bull $282) discounted each case at a different and higher rate and subtracted all debt at face value. We now use one 6% rate for every case and show risk only through what each case assumes. We also credit Lowe's below-market fixed coupons and charge store rent in full. The rent charge lowers our earnings figure, our growth assumptions are lower than before (2% rather than 5% in the base case), and the rate and debt changes raise the values. What could make this wrong. In the base case, housing activity flattens out and does not slide further. A deeper or longer downturn than 2008-2010, the acquired customer relationships at FBM and ADG wearing away (their amortization, about $400 million a year, is added back on the view that ongoing selling costs keep those customers), or heavier tariff costs would push value toward the bear case. On February 20, 2026, the Supreme Court struck down the emergency tariffs imposed under IEEPA, and Lowe's says it cannot yet estimate how the ruling will affect it; we include no refund.