On Tuesday, Oppenheimer shifted its stance on Lowe's Companies Inc (NYSE: NYSE:LOW), raising the stock from Perform to Outperform and increasing the price target to $305 from the previous $230.
The home improvement retailer's shares have been recognized for their discounted valuation and operational efficiency, with operating margins improving since fiscal year 2017.
The margins have risen from 9.6% to an estimated 12.3% for fiscal year 2024, nearing the levels of its competitor, Home Depot (NYSE:HD), which is projected to have a 13.7% operating margin in the same period.
The upgraded price target for Lowe's reflects a new earnings multiple range of 22-24 times the estimated fiscal year 2026 earnings per share (EPS) of $13.30. This adjustment is an increase from the current multiple of 21 times. The analyst from Oppenheimer cited the potential for further multiple expansions as Lowe's continues its strategic re-positioning.
Lowe's current share valuation trades at a significant discount compared to Home Depot, with forward four-quarter price-to-earnings (P/E) multiples of 21 times versus Home Depot's 25 times. This gap in valuation has been a key factor in Oppenheimer's optimistic outlook for Lowe's stock.
In addition to Lowe's, Oppenheimer also raised its price target for Home Depot to $400 from $345. The new targets for both companies are based on a 12-18 month outlook and reflect the firm's confidence in the upside potential for these stocks.
The positive assessment for Lowe's by Oppenheimer comes at a time when the home improvement sector has shown resilience and growth potential, with Lowe's operational improvements and strategic initiatives positioning it favorably in the competitive landscape.
In other recent news, Lowe's Companies Inc. reported mixed Q2 results, with sales of $23.6 billion, marking a 5.1% decline in comparable sales year-over-year. However, Lowe's exceeded analysts' earnings per share estimate of $4.00 with an actual EPS of $4.10, attributed to effective cost management strategies.
The company has also announced a quarterly cash dividend of $1.15 per share following a successful fiscal year 2023 with sales surpassing $86 billion.
In analyst notes, TD Cowen has raised its target for Lowe's shares to $265, maintaining a Hold rating, while Piper Sandler kept an Overweight rating but adjusted the price target to $262. Other firms such as KeyBanc, Loop Capital, Baird, RBC Capital, and BofA Securities also revised their price targets and ratings.
In other company news, Lowe's outlined its focus on initiatives aimed at professional customers, expecting significant growth in its Pro segment. The company's Productivity Improvement Program (PPI) is also anticipated to contribute to funding new initiatives and supporting margin growth. These developments come amid a surge in US homebuilder stocks, including Lowe's, following the Federal Reserve's interest rate cut.
InvestingPro Insights
As Lowe's Companies Inc (NYSE: LOW) receives an optimistic assessment from Oppenheimer, real-time data from InvestingPro further enriches the narrative. With a robust market capitalization of $148.8 billion, Lowe's demonstrates significant industry presence. Notably, the company's P/E ratio stands at 21.6, aligning with the multiples discussed by Oppenheimer and underscoring its discounted valuation relative to Home Depot. Moreover, Lowe's has shown a commendable gross profit margin of 33.21% over the last twelve months as of Q1 2023, which supports the view of operational efficiency highlighted in the article.
InvestingPro Tips further reveal Lowe's status as a prominent player in the Specialty Retail industry, with a history of maintaining dividend payments for an impressive 54 consecutive years. This demonstrates the company's commitment to returning value to shareholders and its financial stability. Additionally, the stock is trading near its 52-week high, reflecting a strong return over the last three months, which may be of particular interest to investors considering the current stock trajectory.
For readers seeking deeper insights, there are additional InvestingPro Tips available for Lowe's, which can be found at https://www.investing.com/pro/LOW. These tips provide a broader perspective on the company's performance and future outlook, which could be instrumental in making informed investment decisions.
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