On Friday, KeyBanc Capital Markets upgraded Lowe’s Companies Inc. (NYSE:LOW) stock rating from Sector Weight to Overweight and established a new price target of $266.00. The upgrade was attributed to the company’s strategic initiatives and favorable position in the home improvement retail sector. As a prominent player in Specialty Retail with a market capitalization of $124 billion, Lowe’s has demonstrated strong financial health, earning a "GOOD" overall rating according to InvestingPro analysis. Bradley Thomas, an analyst at KeyBanc, expressed optimism about Lowe’s recent acquisition of Artisan Design Group (ADG), which is expected to bolster the company’s offerings to professional customers and increase its total addressable market (TAM) by approximately $50 billion. The company’s solid financial foundation is evident in its $12.6 billion EBITDA and impressive track record of raising dividends for 41 consecutive years.
Lowe’s, which traditionally has catered more to do-it-yourself (DIY) customers, has about 75% of its business in this segment compared to its competitor Home Depot (NYSE:HD)’s roughly 50%. With the acquisition of ADG, Lowe’s aims to enhance its penetration in the professional customer market, which could grow its TAM for the Pro segment to around $300 billion. The company’s 2025 Total Home Strategy focuses on driving this Pro customer penetration.
The analyst at KeyBanc also highlighted Lowe’s financial outlook, noting that the company is well-positioned to weather a challenging macroeconomic environment. Lowe’s expects to realize $1 billion in productivity initiatives, supporting profitability. The company is projected to generate over $5 billion in free cash flow in 2025, which represents over a 4% yield. In 2024, Lowe’s generated $7.7 billion in free cash flow. With annual revenue of $83.7 billion and a gross profit margin of 33.3%, InvestingPro subscribers can access detailed analysis of Lowe’s financial metrics and growth potential through comprehensive Pro Research Reports.
Lowe’s current stock price stands at $222.05, reflecting a 22% decrease from its high of about $284 on October 16, 2024, in contrast to the S&P 500’s 6.1% decline over the same period. According to KeyBanc’s analysis, Lowe’s is trading at 16.6 times their 2026 earnings per share (EPS) estimate, which is below the 10-year average price-to-earnings (P/E) ratio of 18 times. KeyBanc suggests that Lowe’s stock multiple could revert to its recent high valuation of 22 times within the next two years, potentially leading to a 38% upside from multiple expansion alone.
In other recent news, Lowe’s Companies Inc. has completed its acquisition of Artisan Design Group for $1.325 billion. This strategic move aims to enhance Lowe’s offerings in the professional home improvement market, particularly in design and installation services. DA Davidson maintained a Neutral rating on Lowe’s stock with a price target of $270, noting the acquisition’s potential to expand Lowe’s customer base. Meanwhile, UBS reiterated a Buy rating with a $300 target, expressing optimism about the acquisition’s potential to strengthen Lowe’s market position. KeyBanc Capital Markets maintained a Sector Weight rating, highlighting the acquisition’s potential to increase Lowe’s total addressable market by approximately $50 billion. Telsey Advisory Group also maintained an Outperform rating with a $305 target, emphasizing the acquisition’s role in bolstering Lowe’s growth prospects. Despite some economic uncertainties, analysts generally view the acquisition as a positive step for Lowe’s. These developments reflect Lowe’s ongoing strategy to expand its professional services and improve its market position.
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