A day after chief rival the Home Depot Inc. (NYSE:HD) reported earnings results that the market didnt find appealing, Lowes Companies Inc. (NYSE:LOW) delivered a solid quarter and guidance that easily topped what analysts had expected.

Lets look closer at the company and the quarter to see why I believe that Lowes might be on its way to becoming the top name in home improvement.

Earnings highlights

Lowes reported fourth-quarter and full year results on Feb. 23. For the quarter, revenue grew 5.1% to $21.3 billion, topping Wall Street analysts estimates by $430 million. Earnings per share of $1.78 compared favorably to earnings per share of $1.33 in the prior period and was 11 cents ahead of what analysts had anticipated.

For the year, revenue grew 7.4% to $96.3 billion while earnings per share of $12.04 compared to $8.86 in the prior year.

Comparable sales grew 5.1% for the quarter, which comes on top of a 30.1% increase in the prior year. Comparable transactions fell 4.4%, but were more than offset by a 9.5% increase in average ticket size. By ticket size, those above $500 increased 15.6% while those in the range of $50 to $500 inched higher by 0.9%. Tickets less than $50 were down 6.8%.

The company repurchased 63 million shares at an average price of $208 during the quarter. Leadership stated that they expect to repurchase another $12 billion, or 8% of its current market capitalization.

An updated outlook for 2022 was also provided, which will include one additional week than last year. Revenue is expected to be between $97 billion to $99 billion, topping estimates of $97 billion. Comparable sales are expected to be down 1% to up 1%. Earnings per share are projected in a range of $13.10 to $13.60, above consensus of $12.94. At the midpoint, this would be an 11% improvement from 2021.

The guidance also called for an operating margin of 12.8% to 13% for 2022. This, according to Morningstar, would mean that the operating margin will have improved more than 400 basis points in four years.

Takeaways

The sheer number of transactions did decline more than 4%, but were still higher by almost 10% on a two-year basis. The weakest component of shopping trends were tickets below $50. This shows that consumers arent making the small purchases as much as they were in the prior year.

Tickets in the mid-range were relatively stable, but Lowes continues to enjoy strong growth in large tickets, with $500+ purchases growing nearly 16% year-over-year.

This speaks to the demand for products for large scale projects. Many consumers are taking steps to update their homes, either to better enjoy their living situation or try to maximize their return in what remains a very hot real estate market. This shows up in the company’s Pro business, which improved 23% for the quarter. The good news is for shareholders that many of these consumers are going to Lowes to meet their needs and that doesnt appear to have slowed at all.

And all of these figures come on the back of very strong results in the prior year. Comparable sales in 2021 were up 6.5%, which is more impressive when factoring in the difficult comparison period. Lowes comparable sales grew 28.1% in the previous year.

On a monthly basis, sales were solid even as they came off very high figures in the prior year. November and December sales were both up more than 7% this past quarter, which came after 23.9% and 27.4% gains in the same two months of last year. January sales did decline by 0.7%, but they were up more than 34% last year so demand is nearly as high as it was in January of 2021.

Growth remains widespread as all product categories grew more than 18% and more than 19% over the last two years. Demand is store wide instead of due to just a few isolated areas.

The margin improvement is also noteworthy. Gross margin for the quarter increased 117 basis points even as investment in the business sapped 30 basis points from the figure. The 8.7% operating margin for the quarter was one of the highest in more than a decade.

Finally, guidance came in above estimates. Even accounting for the extra week that 2022 will have, earnings growth should be in the low double-digits. Just as important, same-store sales are expected, at worst, to fall just 1% even after Lowes has seen incredible results over the last two years. Comparable sales might not rise much in the new year, but they look to be in-line with what occurred last year, which says to me that the elevated demand for Lowes offerings remains present.

Valuation

With shares of Lowes trading at close to $219 today, the stock has a forward price-earnings ratio of just 16.4. This compares to the 10-year average multiple of 18.4 times earnings.

Lowes is only slightly ahead of its intrinsic value according to the GF Value Chart.

Lowe’s Companies Continues to Dominate

With a GF Value of 199.29, Lowes has a price-to-GF-Value ratio of 1.10. The chart above also shows that this is among the best valuations relative to the GF Value that Lowes has traded with in some time. Shares are rated as fairly valued by GuruFocus.

Final thoughts

Lowes continues to perform quite well, with quarterly results topping estimates and guidance for 2022 coming in much better than consensus. The company saw encouraging numbers in its big-ticket items and monthly sales held up fairly well compared to the double-digit improvements seen last year.

While some retailers might see their numbers crash following the surge in pandemic spending, Lowes is seeing demand that is at least as high it was previously. The company could almost be forgiven if same-store sales were to dramatically drop off, but that didnt happen last year and doesnt appear to be the predicted case for 2022. This is a good sign in my opinion.

For dividend growth investors, the yield of just 1.5% might not be the most attractive, but the dividend growth streak of 59 years, the 10-year dividend compound annual growth rate of 18% and the most recent increase of 33% most certainly are.

This article first appeared on GuruFocus.