Stock Analysis on Net

Lowe’s Cos. Inc. (NYSE:LOW)

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Lowe’s Cos. Inc. common stock.


Rates of Return

Lowe’s Cos. Inc., monthly rates of return

Microsoft Excel
Lowe’s Cos. Inc. (LOW) Standard & Poor’s 500 (S&P 500)
t Date PriceLOW,t1 DividendLOW,t1 RLOW,t2 PriceS&P 500,t RS&P 500,t3
Feb 28, 2018 $89.59 2,713.83
1. Mar 31, 2018 $87.75 -2.05% 2,640.87 -2.69%
2. Apr 30, 2018 $82.43 $0.41 -5.60% 2,648.05 0.27%
3. May 31, 2018 $95.01 15.26% 2,705.27 2.16%
. . . . . . .
. . . . . . .
. . . . . . .
70. Dec 31, 2023 $222.55 11.93% 4,769.83 4.42%
71. Jan 31, 2024 $212.84 $1.10 -3.87% 4,845.65 1.59%
Average (R): 1.72% 0.95%
Standard deviation: 8.31% 5.18%
Lowe’s Cos. Inc. (LOW) Standard & Poor’s 500 (S&P 500)
t Date PriceLOW,t1 DividendLOW,t1 RLOW,t2 PriceS&P 500,t RS&P 500,t3
Feb 28, 2018 $89.59 2,713.83
1. Mar 31, 2018 $87.75 -2.05% 2,640.87 -2.69%
2. Apr 30, 2018 $82.43 $0.41 -5.60% 2,648.05 0.27%
3. May 31, 2018 $95.01 15.26% 2,705.27 2.16%
4. Jun 30, 2018 $95.57 0.59% 2,718.37 0.48%
5. Jul 31, 2018 $99.34 $0.48 4.45% 2,816.29 3.60%
6. Aug 31, 2018 $108.75 9.47% 2,901.52 3.03%
7. Sep 30, 2018 $114.82 5.58% 2,913.98 0.43%
8. Oct 31, 2018 $95.22 $0.48 -16.65% 2,711.74 -6.94%
9. Nov 30, 2018 $94.37 -0.89% 2,760.17 1.79%
10. Dec 31, 2018 $92.36 -2.13% 2,506.85 -9.18%
11. Jan 31, 2019 $96.16 $0.48 4.63% 2,704.10 7.87%
12. Feb 28, 2019 $105.09 9.29% 2,784.49 2.97%
13. Mar 31, 2019 $109.47 4.17% 2,834.40 1.79%
14. Apr 30, 2019 $113.14 $0.48 3.79% 2,945.83 3.93%
15. May 31, 2019 $93.28 -17.55% 2,752.06 -6.58%
16. Jun 30, 2019 $100.91 8.18% 2,941.76 6.89%
17. Jul 31, 2019 $101.40 $0.55 1.03% 2,980.38 1.31%
18. Aug 31, 2019 $112.20 10.65% 2,926.46 -1.81%
19. Sep 30, 2019 $109.96 -2.00% 2,976.74 1.72%
20. Oct 31, 2019 $111.61 $0.55 2.00% 3,037.56 2.04%
21. Nov 30, 2019 $117.31 5.11% 3,140.98 3.40%
22. Dec 31, 2019 $119.76 2.09% 3,230.78 2.86%
23. Jan 31, 2020 $116.24 $0.55 -2.48% 3,225.52 -0.16%
24. Feb 29, 2020 $106.57 -8.32% 2,954.22 -8.41%
25. Mar 31, 2020 $86.05 -19.25% 2,584.59 -12.51%
26. Apr 30, 2020 $104.75 $0.55 22.37% 2,912.43 12.68%
27. May 31, 2020 $130.35 24.44% 3,044.31 4.53%
28. Jun 30, 2020 $135.12 3.66% 3,100.29 1.84%
29. Jul 31, 2020 $148.91 $0.55 10.61% 3,271.12 5.51%
30. Aug 31, 2020 $164.69 10.60% 3,500.31 7.01%
31. Sep 30, 2020 $165.86 0.71% 3,363.00 -3.92%
32. Oct 31, 2020 $158.10 $0.60 -4.32% 3,269.96 -2.77%
33. Nov 30, 2020 $155.82 -1.44% 3,621.63 10.75%
34. Dec 31, 2020 $160.51 3.01% 3,756.07 3.71%
35. Jan 31, 2021 $166.85 $0.60 4.32% 3,714.24 -1.11%
36. Feb 28, 2021 $159.75 -4.26% 3,811.15 2.61%
37. Mar 31, 2021 $190.18 19.05% 3,972.89 4.24%
38. Apr 30, 2021 $196.25 $0.60 3.51% 4,181.17 5.24%
39. May 31, 2021 $194.83 -0.72% 4,204.11 0.55%
40. Jun 30, 2021 $193.97 -0.44% 4,297.50 2.22%
41. Jul 31, 2021 $192.69 $0.80 -0.25% 4,395.26 2.27%
42. Aug 31, 2021 $203.89 5.81% 4,522.68 2.90%
43. Sep 30, 2021 $202.86 -0.51% 4,307.54 -4.76%
44. Oct 31, 2021 $233.82 $0.80 15.66% 4,605.38 6.91%
45. Nov 30, 2021 $244.59 4.61% 4,567.00 -0.83%
46. Dec 31, 2021 $258.48 5.68% 4,766.18 4.36%
47. Jan 31, 2022 $237.35 $0.80 -7.87% 4,515.55 -5.26%
48. Feb 28, 2022 $221.06 -6.86% 4,373.94 -3.14%
49. Mar 31, 2022 $202.19 -8.54% 4,530.41 3.58%
50. Apr 30, 2022 $197.73 $0.80 -1.81% 4,131.93 -8.80%
51. May 31, 2022 $195.30 -1.23% 4,132.15 0.01%
52. Jun 30, 2022 $174.67 -10.56% 3,785.38 -8.39%
53. Jul 31, 2022 $191.53 $1.05 10.25% 4,130.29 9.11%
54. Aug 31, 2022 $194.14 1.36% 3,955.00 -4.24%
55. Sep 30, 2022 $187.81 -3.26% 3,585.62 -9.34%
56. Oct 31, 2022 $194.95 $1.05 4.36% 3,871.98 7.99%
57. Nov 30, 2022 $212.55 9.03% 4,080.11 5.38%
58. Dec 31, 2022 $199.24 -6.26% 3,839.50 -5.90%
59. Jan 31, 2023 $208.25 $1.05 5.05% 4,076.60 6.18%
60. Feb 28, 2023 $205.75 -1.20% 3,970.15 -2.61%
61. Mar 31, 2023 $199.97 -2.81% 4,109.31 3.51%
62. Apr 30, 2023 $207.83 $1.05 4.46% 4,169.48 1.46%
63. May 31, 2023 $201.13 -3.22% 4,179.83 0.25%
64. Jun 30, 2023 $225.70 12.22% 4,376.86 4.71%
65. Jul 31, 2023 $234.27 $1.10 4.28% 4,588.96 4.85%
66. Aug 31, 2023 $230.48 -1.62% 4,507.66 -1.77%
67. Sep 30, 2023 $207.84 -9.82% 4,288.05 -4.87%
68. Oct 31, 2023 $190.57 $1.10 -7.78% 4,193.80 -2.20%
69. Nov 30, 2023 $198.83 4.33% 4,567.80 8.92%
70. Dec 31, 2023 $222.55 11.93% 4,769.83 4.42%
71. Jan 31, 2024 $212.84 $1.10 -3.87% 4,845.65 1.59%
Average (R): 1.72% 0.95%
Standard deviation: 8.31% 5.18%

Show all

1 Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of LOW during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Lowe’s Cos. Inc., calculation of variance and covariance of returns

Microsoft Excel
t Date RLOW,t RS&P 500,t (RLOW,tRLOW)2 (RS&P 500,tRS&P 500)2 (RLOW,tRLOW)×(RS&P 500,tRS&P 500)
1. Mar 31, 2018 -2.05% -2.69% 14.23 13.26 13.74
2. Apr 30, 2018 -5.60% 0.27% 53.50 0.46 4.98
3. May 31, 2018 15.26% 2.16% 183.41 1.46 16.36
. . . . . . .
. . . . . . .
. . . . . . .
70. Dec 31, 2023 11.93% 4.42% 104.27 12.04 35.43
71. Jan 31, 2024 -3.87% 1.59% 31.22 0.41 -3.56
Total (Σ): 4,831.49 1,876.53 2,082.69
t Date RLOW,t RS&P 500,t (RLOW,tRLOW)2 (RS&P 500,tRS&P 500)2 (RLOW,tRLOW)×(RS&P 500,tRS&P 500)
1. Mar 31, 2018 -2.05% -2.69% 14.23 13.26 13.74
2. Apr 30, 2018 -5.60% 0.27% 53.50 0.46 4.98
3. May 31, 2018 15.26% 2.16% 183.41 1.46 16.36
4. Jun 30, 2018 0.59% 0.48% 1.28 0.22 0.53
5. Jul 31, 2018 4.45% 3.60% 7.44 7.02 7.23
6. Aug 31, 2018 9.47% 3.03% 60.12 4.30 16.08
7. Sep 30, 2018 5.58% 0.43% 14.92 0.27 -2.02
8. Oct 31, 2018 -16.65% -6.94% 337.49 62.30 145.01
9. Nov 30, 2018 -0.89% 1.79% 6.82 0.69 -2.18
10. Dec 31, 2018 -2.13% -9.18% 14.81 102.63 38.99
11. Jan 31, 2019 4.63% 7.87% 8.50 47.82 20.16
12. Feb 28, 2019 9.29% 2.97% 57.27 4.08 15.29
13. Mar 31, 2019 4.17% 1.79% 6.00 0.70 2.06
14. Apr 30, 2019 3.79% 3.93% 4.29 8.87 6.17
15. May 31, 2019 -17.55% -6.58% 371.41 56.71 145.13
16. Jun 30, 2019 8.18% 6.89% 41.74 35.28 38.38
17. Jul 31, 2019 1.03% 1.31% 0.47 0.13 -0.25
18. Aug 31, 2019 10.65% -1.81% 79.79 7.63 -24.67
19. Sep 30, 2019 -2.00% 1.72% 13.80 0.59 -2.84
20. Oct 31, 2019 2.00% 2.04% 0.08 1.19 0.31
21. Nov 30, 2019 5.11% 3.40% 11.48 6.01 8.31
22. Dec 31, 2019 2.09% 2.86% 0.14 3.63 0.70
23. Jan 31, 2020 -2.48% -0.16% 17.63 1.24 4.68
24. Feb 29, 2020 -8.32% -8.41% 100.75 87.68 93.99
25. Mar 31, 2020 -19.25% -12.51% 439.89 181.30 282.41
26. Apr 30, 2020 22.37% 12.68% 426.51 137.63 242.28
27. May 31, 2020 24.44% 4.53% 516.22 12.78 81.23
28. Jun 30, 2020 3.66% 1.84% 3.77 0.78 1.72
29. Jul 31, 2020 10.61% 5.51% 79.11 20.77 40.53
30. Aug 31, 2020 10.60% 7.01% 78.83 36.65 53.75
31. Sep 30, 2020 0.71% -3.92% 1.02 23.77 4.92
32. Oct 31, 2020 -4.32% -2.77% 36.43 13.83 22.45
33. Nov 30, 2020 -1.44% 10.75% 9.99 96.07 -30.98
34. Dec 31, 2020 3.01% 3.71% 1.67 7.61 3.56
35. Jan 31, 2021 4.32% -1.11% 6.79 4.27 -5.38
36. Feb 28, 2021 -4.26% 2.61% 35.69 2.74 -9.89
37. Mar 31, 2021 19.05% 4.24% 300.32 10.83 57.03
38. Apr 30, 2021 3.51% 5.24% 3.20 18.40 7.67
39. May 31, 2021 -0.72% 0.55% 5.96 0.16 0.99
40. Jun 30, 2021 -0.44% 2.22% 4.67 1.61 -2.74
41. Jul 31, 2021 -0.25% 2.27% 3.87 1.75 -2.60
42. Aug 31, 2021 5.81% 2.90% 16.76 3.79 7.97
43. Sep 30, 2021 -0.51% -4.76% 4.95 32.60 12.70
44. Oct 31, 2021 15.66% 6.91% 194.25 35.54 83.09
45. Nov 30, 2021 4.61% -0.83% 8.34 3.19 -5.16
46. Dec 31, 2021 5.68% 4.36% 15.68 11.62 13.50
47. Jan 31, 2022 -7.87% -5.26% 91.85 38.58 59.53
48. Feb 28, 2022 -6.86% -3.14% 73.65 16.72 35.09
49. Mar 31, 2022 -8.54% 3.58% 105.16 6.89 -26.91
50. Apr 30, 2022 -1.81% -8.80% 12.45 95.04 34.40
51. May 31, 2022 -1.23% 0.01% 8.69 0.90 2.79
52. Jun 30, 2022 -10.56% -8.39% 150.84 87.33 114.77
53. Jul 31, 2022 10.25% 9.11% 72.85 66.56 69.63
54. Aug 31, 2022 1.36% -4.24% 0.13 27.01 1.85
55. Sep 30, 2022 -3.26% -9.34% 24.79 105.94 51.25
56. Oct 31, 2022 4.36% 7.99% 6.98 49.47 18.58
57. Nov 30, 2022 9.03% 5.38% 53.43 19.56 32.32
58. Dec 31, 2022 -6.26% -5.90% 63.69 46.92 54.67
59. Jan 31, 2023 5.05% 6.18% 11.09 27.27 17.39
60. Feb 28, 2023 -1.20% -2.61% 8.52 12.70 10.40
61. Mar 31, 2023 -2.81% 3.51% 20.50 6.51 -11.56
62. Apr 30, 2023 4.46% 1.46% 7.49 0.26 1.40
63. May 31, 2023 -3.22% 0.25% 24.43 0.50 3.48
64. Jun 30, 2023 12.22% 4.71% 110.19 14.14 39.48
65. Jul 31, 2023 4.28% 4.85% 6.58 15.16 9.99
66. Aug 31, 2023 -1.62% -1.77% 11.13 7.42 9.09
67. Sep 30, 2023 -9.82% -4.87% 133.21 33.93 67.23
68. Oct 31, 2023 -7.78% -2.20% 90.22 9.93 29.93
69. Nov 30, 2023 4.33% 8.92% 6.84 63.44 20.83
70. Dec 31, 2023 11.93% 4.42% 104.27 12.04 35.43
71. Jan 31, 2024 -3.87% 1.59% 31.22 0.41 -3.56
Total (Σ): 4,831.49 1,876.53 2,082.69

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VarianceLOW = Σ(RLOW,tRLOW)2 ÷ (71 – 1)
= 4,831.49 ÷ (71 – 1)
= 69.02

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (71 – 1)
= 1,876.53 ÷ (71 – 1)
= 26.81

CovarianceLOW, S&P 500 = Σ(RLOW,tRLOW)×(RS&P 500,tRS&P 500) ÷ (71 – 1)
= 2,082.69 ÷ (71 – 1)
= 29.75


Systematic Risk (β) Estimation

Microsoft Excel
VarianceLOW 69.02
VarianceS&P 500 26.81
CovarianceLOW, S&P 500 29.75
Correlation coefficientLOW, S&P 5001 0.69
βLOW2 1.11
αLOW3 0.66%

Calculations

1 Correlation coefficientLOW, S&P 500
= CovarianceLOW, S&P 500 ÷ (Standard deviationLOW × Standard deviationS&P 500)
= 29.75 ÷ (8.31% × 5.18%)
= 0.69

2 βLOW
= CovarianceLOW, S&P 500 ÷ VarianceS&P 500
= 29.75 ÷ 26.81
= 1.11

3 αLOW
= AverageLOW – βLOW × AverageS&P 500
= 1.72%1.11 × 0.95%
= 0.66%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk (β) of Lowe’s Cos. Inc. common stock βLOW 1.11
 
Expected rate of return on Lowe’s Cos. Inc. common stock3 E(RLOW) 14.61%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 E(RLOW) = RF + βLOW [E(RM) – RF]
= 4.43% + 1.11 [13.60%4.43%]
= 14.61%