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Below you will find my Rule Maker Analysis for the 
second largest home improvement retailer in the United 
States, Lowe's (LOW).  Lowe's is another example of a 
Merchant King type company, with high asset turnover
and low margins.  Therefore, it doesn't exactly shine
according to the Rule Maker criteria.  It doesn't help
that Lowe's carries a lot of debt due to its recent
expansion plans, and an average Flowie that appears to
be on the rise.  On the positive side, it has some of
the same good points as Home Depot:  rapid sales 
growth and rising margins.  The rising short term debt
is also a concern.  In any event, I don't think anyone
will confuse this stock with a Rule Maker anytime soon.

In doing the analysis, I used Home Depot as its only 
competitor.  According to Hoovers, the other major 
competitors are Menard's and Sears.  Menard's is a 
private company, and I don't think Sears really 
competes in the same market as Lowe's, even though
they may sell the same type goods.  A more comparable
competitor may be Wal-Mart, but because they are much
more diversified than just hardware supplies, I 
decided not to include them in the analysis.

Now on with the numbers:

Financial AnalysiCompany Being Evaluated                          Competitor #1   Competitor #2  Competitor #3

                     Lowe's                                        Home Depot
                      (LOW)                                           (HD)
                 Current Period Year-ago PeriodYear-over-Year    Current Period  Current Period Current Period
                      1998           1997          Growth             1998           <Date>         <Date>
Income Statement . . .
  Sales                  12,245         10,137      20.8%                 30,219
  Cost of Goods S         8,950          7,447      20.2%                 21,614
  Net Income                482            357      35.0%                  1,614
  Shares Outstand           352            349      0.9%

Balance Sheet . . .
  Cash & Equivale           243            211      15.2%                     62
  Current Assets          2,586          2,110      22.6%                  4,933
  Short-term Debt           191            110      73.6%                     14
  Current Liabili         1,765          1,449      21.8%                  2,857
  Long-term Debt          1,283          1,046      22.7%                  1,566
                                                                                1              0              0
Margins & Ratios . . .                                                                                         Competitors' Average
  Gross Margins            26.9%          26.5%      0.4                    28.5%                                   28.5%
  Net Margins               3.9%           3.5%      0.4                     5.3%                                    5.3%
  Cash-to-Debt              0.16           0.18     -9.7%                    0.04                                    0.04
  Net Cash               -1231.0         -945.0      N/A                  -1518.0                                 -1518.0
  Fool Flow Ratio           1.49           1.42     5.0%                     1.71                                    1.71


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Ranking Rule Makers

1) Brand          Points (0-1)                                  3) Financial Dire Points (0-3)
Familiarity                    1                                Sales Growth                   3
Openness                       1                                Gross Margins                  3
Optimism                       1                                Net Margins                    3
Legitimacy                     1                                Shares Outstandin              2
Inevitability                  1                                Cash-to-Debt                   1
Solitariness                   0                                Fool Flow Ratio                0
Humor                          1                                Expansion Potenti              3
  Subtotal                     6                                  Subtotal                    15

2) Financial Loca Points (0-2)                                  4) Monopoly Statu Points (0-4)
Mass Market Habit              2                                Gross Margins                  0
Gross Margins                  0                                Net Margins                    0
Net Margins                    0                                Net Cash                       4
Cash-to-Debt                   0                                Fool Flow Ratio                2
Fool Flow Ratio                0                                Convenience                    2
Your Interest                  2                                  Subtotal                     8
  Subtotal                     4
                                                                5) Your  Enjoymen              1

                   Total Score               34  Third Tier


As always, post your comments and questions.

the LanceMan
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