Research Roundup: Home Depot or Lowe’s? Why Not Both
Unexpectedly strong quarterly results from Home Depot (HD) and Lowe’s, (LOW) along with improved profits at Sears, Target and Macy’s give cause for optimism that the US economy continues to dig its way out of the recession.
“We think what you are seeing in the numbers from Home Depot and Lowe’s is spend by those people in their homes feeling more confident from when median home values troughed in January 2009,” said Brian Sozzi, an analyst at Wall Street Securities (Financial Times).
“We are not off to the races where people are tearing down the walls in their kitchen again, but at the margin people are starting to invest in their homes again,” Chris Horvers , an analyst at JPMorgan Chase & Co in New York, said today in a Bloomberg Television interview.
Morningstar says Home Depot’s solid fourth-quarter results “affirm our view that the home-improvement market is poised for a recovery.”
Deutsche Bank analyst Mike Baker said Lowe’s CEO Robert Niblock’s comments that the worst is behind are supported by better trends in higher-priced items, improving special-project sales and by the fact that Lowe’s will buy back stock for the first time since 2007 (Canadian Press).
Moody’s said the stock buyback would have no immediate impact on the company’s credit rating or outlook. “Lowe’s A1 rating continues to balance its credit metrics, which remain solid despite recent weakening, its best-in-class supply chain, and its superior shopping experience, against a continued challenging macroeconomic environment.”
On Jan 12, prior to the fourth quarter results announcement, Scot Ciccarelli of RBC Capital Markets wrote that he was expecting Lowe’s comparable store sales to turn positive sometime in mid-2010. He raised his price Target to $28 from $24 and named the company “One of Our Favorite Plays for 2010.”
He also raised his target on Home Depot to $32 from $28 but prefers Lowe’s over Home Depot.
Meanwhile, Morgan Stanley’s Gregory Melich, added Home Depot as a “Best Idea” on Feb 8, with a target price of $35. “HD or LOW? We say both. Our upgrade of HD is effectively a “double down” on home improvement. The macro trends are improving and both HD and LOW can succeed in 2010, in our view ….. HD has a better dividend yield and exposure to the “bubble markets” that could enable it to outcomp in 2010. LOW has 200-300 more stores it could build, which should provide some growth premium in the multiple.”
One final thought: both companies are likely to get at least a further temporary boost from home repairs following the unusually severe winter weather in heavily populated areas up and down the East Coast and elsewhere.
Home Depot’s Conference Call Transcript.
Lowe’s Conference Call Transcript.
See Alacra Pulse for for free latest analyst comment on Home Depot and Lowe’s.
(Disclosure: long Lowe’s)
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