An exterior view of a Lowe’s home improvement store on
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Home-improvement retailers will report first-quarter earnings later this month, and Citigroup says investors should expect more good news from these pandemic winners.
Analyst Steven Zaccone reiterated Buy ratings on Home Depot (ticker: HD) and Lowe’s (LOW) stock on Tuesday, while raising his price target on the former to $375 from $288, and on the latter to $239 from $195. He notes that while the stocks have already handily outperformed the broader market—both are up more than 24% year to date, double the rise in the S&P 500 index —the “the multiyear bull case is gaining momentum. Our conviction is based on a strong housing market for the next few years, growing pro backlogs, and a strengthening consumer that still prioritizes spending on the home.”
Mass vaccination has allowed a good deal of economic reopening already, but Zaccone writes that this hasn’t dented consumers’ willingness to spend on their homes. That leads him to raise his first-quarter same-store sales estimates to 26% for Home Depot and 23% for Lowe’s—comfortably ahead of the respective 17.9% and 17.8% growth that the Street is predicting for the companies.
Moreover, while cities may be reopening, that hasn’t stopped people from flocking to the suburbs, flush with stimulus cash, optimistic about the economy, and prompted by low interest rates. Although low housing supply has been an issue, Zaccone sees “the likelihood of more supply coming online in 2021 and 2022 as consumers return to more-normal lifestyle patterns post-pandemic. This bodes well for housing turnover to continue to be strong even if price growth moderates.”
That’s all positive for the retailers, he writes: Homeowners are more likely to invest in renovations and remodeling if they see it improves the value of their homes, and a successful project often leads to another.
Zaccone isn’t the only analyst bullish on Home Depot and Lowe’s ahead of earnings, given recent robust trends in housing. Lowe’s stock is up nearly 30% since Barron’s recommended it in early March.
Home Depot stock is edging down 0.2% to $329.60 in morning trading, while Lowe’s stock is up 0.3% to $199.75.
Write to Teresa Rivas at [email protected]
