Citi Reiterates a 'Hold' on Home Depot and Lowe's, Three Reasons Why It's Too Early to Buy HD/LOW

December 16, 2008 10:53 AM EST
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Citi reiterates a 'Hold' rating on Home Depot (NYSE: HD) and Lowe's (NYSE: LOW). HD with a $22 target price, LOW with a $20 target price.

Citi analyst says, "Three reasons why it's too early to Buy HD or LOW: #1) Foreclosures Inflating Housing Turnover - September housing turnover (HTO) rose to (-3.6)%, up from (-13.5)% in August, driven largely by sales of foreclosed properties; #2) Negative HTO Should Pressure Home Improvement Sales - Despite the improvement in HTO in 2008, we believe that housing market fundamentals remaint challenging and do not expect HTO to turn positive until early 2010, when the job market improves, credit conditions become more favorable, and inventory and prices stabilize in the housing market; #3) EPS to be Pressured by Slowing Sales - We have modeled reduced square footage growth and HSD negative same-store sales growth for HD and LOW in 2009. Lower sales will significantly impact the ability for HD and LOW to leverage expenses, and we believe that 2009 consensus estimates of $1.46 for HD and $1.35 for LOW are too optimistic."

The Home Depot, Inc. is a home improvement retailer. [SM]

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