Skip to main content

Lowe's Cos. Rating Lowered To 'BBB+' On Less Conservative Financial Policy; Outlook Stable

  • Home improvement retailer Lowe's revised its leverage target to 2.75x from 2.25x. We see the company reaching its new leverage target over the next year as it issues debt to fund share buybacks, resulting in weaker credit metrics.
  • S&P Global Ratings lowered its issuer credit rating on Lowe's to 'BBB+' from 'A-'. We affirmed our 'A-2' short-term rating.
  • The stable outlook reflects our expectation that Lowe's approach to leverage will be consistent with its new leverage targets, while modestly growing earnings and cash flows in the next one to two years.
NEW YORK (S&P Global Ratings) Dec. 12, 2018—S&P Global Ratings today took the 
rating actions listed above.  The downgrade reflects our expectation for 
higher leverage as the company adopts a less conservative financial policy to 
increase shareholder returns. Lowe's has a relatively new executive management 
team, including a recently hired CEO and chief financial officer, but we 
expect the shift in financial policy won't limit the ability to fund and 
execute new operational strategies. The new management team has substantial 
retail experience and includes executives with prior employment at Home Depot. 
We forecast debt to EBITDA increasing to the high 2x area over the next year 
(about 2.3x currently) as the company uses proceeds from debt issuance along 
with excess cash flows to repurchase shares.    


The stable outlook on Lowe's reflects our view that after issuing debt to fund 
share repurchases, the company will maintain leverage in the high-2x area. We 
expect positive sales trends to continue and good cash flow generation over 
the next two years. Favorable trends in the repair and remodeling sector and 
good business execution including store and supply chain investments are 
factors underpinning our growth expectations.  


We could lower the rating if we expect leverage to be sustained at 3x or 
higher. This could occur if Lowe's adopts a more aggressive financial policy 
and capital allocation plans such that debt increases more than we anticipate 
without offsetting profit growth. A downgrade could also occur if Lowe's 
performance weakens materially from store execution issues that lead to flat 
to negative same-store sales or EBITDA margins declining by about 150 basis 
points with no offsetting reduction in debt.  


We view an upgrade as unlikely over the next two years because of Lowe's new 
financial policy. Still, a higher rating would be predicated on the company's 
commitment to a more conservative financial policy such that we would expect 
leverage to remain below 2.5x and for performance, including same-store sales 
and profit margins, to remain good.   


North Carolina-based Lowe's is the second-largest home improvement retailer 
worldwide, based on annual revenues of nearly $71 billion (as of Nov. 2, 
2018). The company currently operates 2,133 home improvement and hardware 
stores in the U.S., Canada, and Mexico. 


  • We believe modest economic momentum will drive spending at home improvement retailers. We forecast U.S. GDP growth of 2.3% in 2019 slowing to 1.8% in 2020, unemployment rate below 4%, rising wages, and aging housing stock support decent growth in repair and remodeling activities.
  • Comparable same-store sales between 3%-4% over the next two years as Lowe's benefits from industry tailwinds and operating initiatives;
  • Adjusted EBITDA margins improving about 75 basis points to the high-12% area over the next two years from in-stock execution at stores, merchandise resets, and supply chain efficiencies;
  • Robust free operating cash flows of over $5 billion annually after operating cash flows of about $7 billion each year and capital spending for technology investments and store initiatives; and
  • Additional debt issuances between $3 billion-$5 billion in 2019 primarily to fund incremental share repurchases and upcoming maturities.
Based on these assumptions, we now expect debt to EBITDA to increase to about 
2.7x over the next year, from about 2.3x currently. Our forecast leverage 
metrics are more in line with the 'BBB+' rating and do not afford much room 
for more aggressive shareholder remuneration. We think if the economy slows, 
Lowe's has some flexibility to manage its capital allocation plans by pulling 
back on debt-funded share repurchases to offset profit declines and from its 
high real estate ownership.  

We revised our liquidity assessment on Lowe's to strong (from adequate) to 
reflect the company's significant cash flow generation driven by profitability 
and good working capital management. We expect cash sources to exceed cash 
uses by around 1.5x over the next 12 months and to remain over 1x thereafter. 
The company has high standing in the credit markets and a solid relationship 
with its banks as illustrated by its history of bond issuances and debt 
refinancing at attractive rates.

Principal liquidity sources:
  • Cash and short-term investments of about $1.7 billion as of Nov. 2, 2018;
  • Borrowing availability under the company's revolving credit facility expiring in September 2023, which backstops the commercial paper program; and
  • Our projected cash flow from operations of around $7 billion annually.
Principal liquidity uses:
  • Manageable debt maturities over the next two years;
  • Peak-to-trough seasonal working capital needs;
  • Capital spending averaging about $1.5 billion annually;
  • Annual dividends between $1.5 billion and $1.6 billion over the next two years; and
  • Significant share repurchases that can be reduced in a stressed environment.

TAKE A LOOK AT*

Western Alliance Bancorporation Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Sat Jan 22 2022 07:42:01 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model Our liquidity uses include dividends and share repurchases that we expect under a stress scenario. Unlike other potential uses of liquidity, such as debt maturities or maintenance capital spending, we view dividends and share repurchases as more discretionary, although more so for the latter. For this reason, when evaluating a company's liquidity position, we may use a lower estimate of dividends and shareholder repurchases than in our base-case forecast based on our views of management and the company's track record in terms of shareholder returns and maintaining a certain minimum level of liquidity. Rating Model for Western Alliance Bancorporation: We estimate the credit risk parameters by Parabolic SAR (PSAR) and Polynomial Regression Credit Ratings for Western Alliance Bancor

CTI BioPharma Corp. Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Sat Jan 22 2022 05:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model In this scenario, we would still include the existing debt maturity as a use of liquidity in our A/B and A-B calculations, if the debt matures within the corresponding liquidity horizon. The rationale is that our liquidity assessment is essentially a stress test against a sudden and severe loss of capital markets access availability. For companies with an anchor of at least 'bbb-' that meet certain characteristics, as outlined in paragraphs 38 and 39 of the criteria, we may use a shorter three- to six-month time horizon when assessing upcoming maturities. Rating Model for CTI BioPharma Corp.: We estimate the credit risk parameters by Modified (Smoothed) Moving Average and Wilcoxon Rank-Sum Test Credit Ratings for CTI BioPharma Corp. as of 22 Jan 2022 Credit Rating Sho

Meadowbrook Insurance Group, Inc. Common Stock Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Sat Jan 22 2022 01:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model Under times of stress, such actions could include dividend cuts, suspension of share repurchases, or maintenance of minimum cash balances. This is particularly relevant for exceptional and strong assessments, where issuers are required to carry higher levels of excess liquidity even during times of stress. For example, when assessing liquidity, we would generally expect companies to be able to cover the full amount of dividends and share repurchases included in our base-case forecast, while still maintaining excess liquidity and achieving the required A/B and A-B measures under a stress case. Rating Model for Meadowbrook Insurance Group, Inc. Common Stock: We estimate the credit risk parameters by Robinson Oscillators and Paired T-Test Credit Ratings for Meadowbrook Insurance Group, Inc.

Merus Labs International Inc. Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Wed Jan 19 2022 08:42:04 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model While we only include contractual acquisitions when calculating A/B and A-B, when evaluating qualitative factors, we focus more on a company's track record and our expectation for financial management. In this respect, the quantitative and qualitative factors under the liquidity criteria are meant to complement each other and produce a more comprehensive view of a company's future liquidity position. Rating Model for Merus Labs International Inc.: We estimate the credit risk parameters by Envelope (ENV) and Paired T-Test Credit Ratings for Merus Labs International Inc. as of 19 Jan 2022 Credit Rating Short-Term Long-Term Senior AI Rating Class* B1 Ba3 Semantic Signals 31 33 Financial Signals 87 87 Risk Signals 63 74 Substantial Risks 62 49 Speculative Signa

Nuveen Connecticut Premium Income Municipal Fund Common Stock Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Fri Jan 21 2022 00:42:03 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model When calculating sources of liquidity, we only include the undrawn, available portion of committed bank lines maturing beyond the specified time horizon for each liquidity descriptor. For example, when assessing liquidity as adequate, we only include a committed revolving credit facility as a source if it matured beyond the next 12 months. Similarly, given that our liquidity assessment looks out over two years when assessing liquidity as strong or exceptional, we only include a facility maturing beyond 24 months as a source of liquidity. Rating Model for Nuveen Connecticut Premium Income Municipal Fund Common Stock: We estimate the credit risk parameters by Wien Bridge Oscillator and Beta Credit Ratings for Nuveen Connecticut Premium Income Municipal Fund Common Stock as of 21 Jan 2022

GREENWOOD COUNTY FINANCIAL SERVICES, INC. Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Wed Jan 19 2022 07:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model If we believe a company would use cash trapped at a foreign subsidiary to meet debt maturities or other liquidity uses at that foreign subsidiary, we would include this cash as a source of liquidity up to the amount of the corresponding use. We generally haircut the cash to be included under sources when a material proportion of a group's cash is held in a different part of the structure than where the debt is located, and we believe the cash may not be fully fungible within the group. Rating Model for GREENWOOD COUNTY FINANCIAL SERVICES, INC.: We estimate the credit risk parameters by Royer Oscillators and Stepwise Regression Credit Ratings for GREENWOOD COUNTY FINANCIAL SERVICES, INC. as of 19 Jan 2022 Credit Rating Short-Term Long-Term Senior AI Rating Class* B2

SAWYER SAVINGS BANK Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Sat Jan 22 2022 00:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model Given that we exclude proposed "best efforts" or potential financings as a source of liquidity, we also exclude from uses of liquidity acquisitions and other discretionary spending that are contingent on the successful issuance of new financing to support the proposed transaction. Rating Model for SAWYER SAVINGS BANK: We estimate the credit risk parameters by Bollinger Bands and Simple Regression Credit Ratings for SAWYER SAVINGS BANK as of 22 Jan 2022 Credit Rating Short-Term Long-Term Senior AI Rating Class* Ba3 B2 Semantic Signals 70 51 Financial Signals 57 61 Risk Signals 65 39 Substantial Risks 89 57 Speculative Signals 39 61 *Machine Learning utilizes multiple learning algorithms to obtain better predictive powers. In our research, we utilize mach

Sac's Bar Holdings Inc Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Fri Jan 21 2022 23:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model We do not treat repayments of leases as debt maturities (even if International Financial Reporting Standard 16 shows them as such in the cash flow statement) because we already have reduced FFO by such lease cash outflow. Rating Model for Sac's Bar Holdings Inc: We estimate the credit risk parameters by RC Phase Shift Oscillator and ElasticNet Regression Credit Ratings for Sac's Bar Holdings Inc as of 21 Jan 2022 Credit Rating Short-Term Long-Term Senior AI Rating Class* B1 B3 Semantic Signals 31 53 Financial Signals 77 45 Risk Signals 35 31 Substantial Risks 63 65 Speculative Signals 84 34 *Machine Learning utilizes multiple learning algorithms to obtain better predictive powers. In our research, we utilize machine learning to combine the results from th

GOLDEN PROSPECT PRECIOUS METALS LIMITED Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Wed Jan 19 2022 03:42:04 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model For exceptional and strong liquidity assessments, we characterize standing in the credit markets as generally high, and for adequate liquidity, we view standing in the credit markets as satisfactory. We distinguish between these descriptors based on analytical judgment and mainly consider the diversity of funding sources available to an entity. Rating Model for GOLDEN PROSPECT PRECIOUS METALS LIMITED: We estimate the credit risk parameters by Multi-Wave Oscillators and Stepwise Regression Credit Ratings for GOLDEN PROSPECT PRECIOUS METALS LIMITED as of 19 Jan 2022 Credit Rating Short-Term Long-Term Senior AI Rating Class* B2 Ba3 Semantic Signals 85 66 Financial Signals 47 75 Risk Signals 54 67 Substantial Risks 48 41 Speculative Signals 33 63 *Machine Learning ut

TAKACHIHO KOHEKI CO., LTD. Credit Rating & Financial Statements Analysis

BOSTON (AC Invest Credit Rating Terminal) Sat Jan 22 2022 06:42:02 GMT+0000 (Coordinated Universal Time) AI Credit Ratings today took the rating actions below: Credit Rating Rationales & Model In this scenario, we would still include the existing debt maturity as a use of liquidity in our A/B and A-B calculations, if the debt matures within the corresponding liquidity horizon. The rationale is that our liquidity assessment is essentially a stress test against a sudden and severe loss of capital markets access availability. For companies with an anchor of at least 'bbb-' that meet certain characteristics, as outlined in paragraphs 38 and 39 of the criteria, we may use a shorter three- to six-month time horizon when assessing upcoming maturities. Rating Model for TAKACHIHO KOHEKI CO., LTD.: We estimate the credit risk parameters by Ratiocator (RAT) and Polynomial Regression Credit Ratings for TAKACHIHO KOHEKI CO., LTD. as of 22 Jan 2022 Credit Rating Short-Te

 *AC INVEST | Legal Disclaimer | NYSE | NASDAQ | LSE | NSE |