On Tuesday, Oppenheimer changed its stance on Lowe’s Companies Inc (NYSE:NYSE:), upgrading the stock from Perform to Outperform and raising the price target to $305 from $230 previously.
The home improvement retailer’s stock has been recognized for its discounted valuation and operating efficiency, with operating margins improving since fiscal 2017.
Margins have increased from 9.6% to an estimated 12.3% for fiscal year 2024, approaching the levels of its competitor, House deposit (NYSE:), which is projected to have an operating margin of 13.7% in the same period.
The updated target price for Lowe’s reflects a new earnings multiple range of 22 to 24 times fiscal 2026 estimated earnings per share (EPS) of $13.30. This adjustment is an increase from the current multiple of 21 times. The Oppenheimer analyst cited the potential for future multiple expansion as Lowe’s continues its strategic repositioning.
Lowe’s current stock valuation trades at a significant discount to Home Depot, with four-quarter forward price-earnings (P/E) multiples of 21 times, versus Home Depot’s 25 times. This difference 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- to 18-month outlook and reflect the firm’s confidence in the upside potential for these stocks.
Oppenheimer’s positive assessment of Lowe’s comes at a time when the home improvement sector has demonstrated 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 results for the second quarter, with sales of $23.6 billion, marking a 5.1% year-over-year comparable sales decline. However, Lowe’s beat analysts’ earnings per share estimates of $4.00 with actual EPS of $4.10, attributed to effective cost management strategies.
The company also announced a quarterly cash dividend of $1.15 per share following a successful fiscal year 2023 with sales exceeding $86 billion.
In analyst notes, TD Cowen raised its price target on Lowe’s stock to $265, maintaining a Hold rating, while Piper Sandler maintained an Overweight rating but adjusted the price target to $262. Other firms including KeyBanc, Loop Capital, Baird, RBC Capital and BofA Securities also revised their price targets and ratings.
In other company news, Lowe’s highlighted its focus on initiatives targeting professional customers, and expects significant growth in its Pro segment. The company’s Productivity Improvement Program (PPI) is also expected to help fund new initiatives and support margin growth. These developments come amid a surge in shares of U.S. homebuilders, including Lowe’s, following the Federal Reserve’s interest rate cut.
InvestingPro Insights
As Lowe’s Companies Inc (NYSE:LOW) receives an upbeat assessment from Oppenheimer, InvestingPro’s real-time data further enriches the narrative. With a robust market capitalization of $148.8 billion, Lowe’s demonstrates a significant presence in the industry. Notably, the company’s price-to-earnings ratio stands at 21.6, in line with the multiples analyzed by Oppenheimer and underlining its discounted valuation relative to Home Depot. Moreover, Lowe’s has displayed a commendable gross profit margin of 33.21% over the trailing twelve months to Q1 2023, supporting the operational efficiency view highlighted in the article.
InvestingPro’s tips further reveal Lowe’s status as a leading player in the specialty retail industry, with a track record of maintaining dividend payments for 54 consecutive years. This demonstrates the company’s commitment to returning value to shareholders and its financial stability. Moreover, the stock is trading near its 52-week high, reflecting a strong performance over the past three months, which may be of particular interest to investors considering the stock’s current trajectory.
For readers looking for more detailed information, additional InvestingPro tips are 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 prospects, which could be instrumental in making informed investment decisions.
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