Lowe’s stock jumped Thursday after Oppenheimer upgraded the pandemic winner’s shares.
It’s the latest in a string of bullish predictions about the home improvement retailer’s coming first-quarter earnings report, although the stock may react more on the company’s longer-term outlook.
raised his rating on Lowe’s (ticker: (LOW)) to Outperform from Perform, establishing a $235 price target, about 17% above the stock’s current levels. Shares rose 3.1% to $201.53 in recent Thursday trading.
Nagel has long been cautious on pandemic winners like Lowe’s. After all, they face difficult year-over-year comparisons to 2020 and could struggle to maintain their momentum as the U.S. edges back toward normalcy. While those concerns are still valid, Nagel’s call on Lowe’s is “largely tactical in nature,” he writes. It is based on expectations for continued fund flows into cyclical stocks and a discounted valuation compared with its rival
business has shown marked improvement.
Nagel says there could still be additional room for improvement in metrics like margins as the company continues to tighten operations.
Consumers will be eager to return to travel and dining out when they feel safe doing so, which will detract from the amount of money they might spend on housing, he says. That said, the post-pandemic economic recovery in the U.S. is shaping up to be stronger than many expected, which should help cyclically-driven stocks, he writes. Lowe’s fits that bill, even as it’s “overlooked as a high quality, self-help, inexpensive cyclical play.”
Nagel is far from being the only analyst who is upbeat about Lowe’s—and Home Depot—head of their first-quarter results, due out next week. Wells Fargo boosted its price target on both stocks last week, coming after similar moves from Baird and Citigroup, which point to long-term drivers for the stocks beyond the pandemic boost.
At this point, robust earnings for Home Depot and Lowe’s seem likely. The ongoing strength in the housing market, the latest round of stimulus, and data points showing that consumers are still prioritizing their homes all bode well for the first quarter. The big jump in lumber prices alone might be enough to lift top-line numbers.
If either company doesn’t deliver a better-than-expected report, that could weigh on the shares. But a beat doesn’t guarantee the stocks will move higher, either. Because of the many catalysts for the first quarter, investors will likely be looking ahead, focusing on commentary for the rest of the year. Guidance or management remarks could signal how confident the companies feel about continued spending in the home improvement market, even as the economy reopens. A more measured tone—even if it ultimately proves to be conservative—could hurt the stocks.
Lowe’s shares have gained 25.5% year to date and are up 82.5% in the past 12 months. The stock has climbed more than 30% since Barron’s recommended the stock in early March, more than three times the gain of the S&P 500 over the same period.
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