Lowe’s stock has experienced a significant surge in 2023, and according to one analyst, the upward momentum shows no signs of slowing down. As the popular retailer closes the gap with its main competitor, Home Depot, there is renewed optimism for Lowe’s future.
Alliance Bernstein analyst Dean Rosenblum recently upgraded Lowe’s (ticker: LOW) stock from Market Perform to Outperform. In addition to this upgrade, Rosenblum also increased his price target for Lowe’s to $282 from $252. This new price target suggests a remarkable 21% upside from the company’s closing price of $232.51 on Friday.
Rosenblum explains that the decision to upgrade Lowe’s is not based on a single factor, but rather a combination of positive trends that are expected to continue. These trends are anticipated to result in both accelerated earnings per share (EPS) growth and an expansion of Lowe’s valuation.
One of the key aspects highlighted by the analyst is Lowe’s exceptional sales growth in its Pro business segment, which caters primarily to contractors. Historically, Home Depot has dominated this segment, but Lowe’s is quickly catching up. In fact, during the first two quarters of fiscal 2023, Lowe’s Pro sales outpaced those of Home Depot. Rosenblum predicts further growth in this category as well.
As Lowe’s continues to expand its Pro business, its profit margins are also on the rise. The company’s operating margin in the latest quarter stood at 15.6%, surpassing the previous quarter’s 14.4% and even outperforming Home Depot’s margin of 15.4%.
For a long time, Home Depot has enjoyed a higher valuation compared to Lowe’s due to its superior operating margin and larger share of Pro sales. However, with Lowe’s making significant strides in both areas, Rosenblum argues that the market will find it increasingly challenging to justify Home Depot’s premium valuation over Lowe’s.
In conclusion, Lowe’s is well-positioned for continued growth and success in the coming year, as the company narrows the gap with Home Depot and capitalizes on its momentum in the Pro business segment. With positive trends and a promising outlook, it is no wonder that analysts like Rosenblum have high expectations for Lowe’s future performance.
The Future of the U.S. Home Improvement Market
The U.S. housing market is slowly rebounding, which could provide a much-needed boost to the home improvement sector, according to experts. Despite higher mortgage rates deterring prospective buyers from purchasing new homes, many individuals are still eager to embark on renovation projects for their existing residences.
In fact, industry analysts suggest that the worst may already be behind us, offering a ray of hope for the U.S. Home Improvement (USHI) market in the near term. They also express solid bullishness regarding the medium- to long-term outlook for USHI.
Lowe’s, one of the leading players in the industry, shares this optimism for the sector’s future performance. During their latest quarterly earnings call, Lowe’s CEO Marvin Ellison emphasized that while many home improvement projects were postponed due to uncertain circumstances, they were not entirely abandoned. Furthermore, several positive factors are set to drive future expenditure in this market.
Ellison highlighted various factors that contribute to this positive outlook, including the aging housing stock that will necessitate remodeling and repairs, as well as favorable trends like millennial household formation, aging-in-place, and the persistence of remote work.
Earlier this year, ‘s recognized Lowe’s as a stock pick, supporting a similar argument. However, opinions within the investment community are divided on this matter. Approximately 54% of analysts rate Home Depot as a Buy, while 56% rate Lowe’s as a Buy. Telsey Advisory Group recently downgraded both stocks in August due to concerns regarding the recovery time for the housing market.
Despite these different viewpoints, Lowe’s shares experienced a slight decrease of 1% to $230.36 during early morning trading on Tuesday.