:max_bytes(150000):strip_icc()/GettyImages-2216320817-bb0b3d4c2d274a5b8cc0311897d82ce0.jpg "Here’s Why This Analyst Prefers Lowe’s Stock to Home Depot’s")
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Key Takeaways
- Home Depot and Lowe’s shares look relatively elevated on a near-term basis, but Lowe’s appear to be a bit more realistically priced, Oppenheimer says.
- Analysts expect the housing market to thaw and home improvement to rebound, but are’t sure when that will happen.
The market may be expecting too much from both Home Depot and Lowe’s, according to Oppenheimer analysts, but one of the home improvement retailer’s shares look a little less lofty.
Shares of both companies are trading at relatively high prices, given that their sales will likely remain soft for some time, Oppenheimer analysts said Thursday. A rebound in the stagnant housing market—and subsequently, in demand for home improvement supplies—will likely lag interest rate cuts, Oppenheimer wrote.
That said, Lowe’s (LOW) stock price is a more realistic reflection of the housing market, analysts said—and the company has more opportunity to improve. The Analysts expect Home Depot (HD) and Lowe’s to rebound back to “normal” growth rates, but believes investors may be “too optimistic as to the potential timing of such a recovery.”
Why This News Matters to Investors
Housing turnover is at a decades-long low, with owners reluctant to move and take on a mortgage with higher interest rates. Although interest rates have come down some, some analysts expect it to be a while before that impacts the housing market. It could also weigh on home-improvement stocks, though some may offer better long-term opportunity.
“For clients looking to ‘wait out’ [the] potential for ongoing cyclical sluggishness in home improvement, we prefer shares of … [Lowe’s], owing to business model slack and a compelling, relative valuation,” Oppenheimer said.
Oppenheimer gave Lowe’s stock an “outperform” rating and $320 price target, about 25% above Thursday’s close and well above the roughly $289 mean of analysts tracked by Visible Alpha.
Home Depot, meanwhile, got a “perform” rating and a $420 price target, about a 3% premium to today’s close and below the Street’s average around $447.
