Bernstein Upgrades Lowe's (LOW) to Outperform

(Updated - September 5, 2023 4:55 AM EDT)

Bernstein analyst Dean Rosenblum upgraded Lowe's (NYSE: LOW) from Market Perform to Outperform with a price target of $282.00 (from $252.00).

The analyst comments "We've been on the sidelines on LOW since our initiation back in Dec 2022. But we now see a confluence of positive and mutually reinforcing trends that we expect to continue, leading us to take our TP up to $282 from $252, and to upgrade LOW to Outperform from Market-Perform. We believe LOW will continue to deliver modest op margin expansion over the next 24 months, driven by the continued modest gross margin expansion of 5-10bps / year combined with stable to modestly improving OpEx % of sales. We expect LOW’s PRO growth to continue to outpace HD’s as LOW continues to close the Pro "primary source for" preference vs. HD, driving LOW gain share from HD in the store-based, immediate-need occasion, which will bolster LOW's OpEX leverage. We also expect LOW's ROIC gains (now at ~parity) vs. HD to persist, and this firming-up LOW's relative ROIC performance gap vs. HD will help drive modest multiple expansion for LOW over the next 24 months. We are comfortable with the HI market outlook in the near-term, and see a return to LSD growth into 2024-25 as the housing market stabilizes. And we remain unequivocally bullish on the long-term drivers of HI spending. All in, we expect LOW to exceed Cons on FY24 topline growth by ~80bps, and on Op Margin by ~10-15bps, leading to FY24 Adj Dil EPS ~$0.65 ahead of Cons, and EPS growth ~500bps ahead. And we anticipate FY25 expectations to improve as well. And on that, combined with LOW's ROIC gains, we are assuming a 0.05x-turn expansion in LOW Rel P/E (for a 0.8x-turn lift in LOW Abs P/E), leading to 22% 12-month upside in the stock. (Even with no multiple expansion, we see expansion, we see ~15% 12-month upside.) As market growth returns to historical LSD / MSD levels, and with additional runway for LOW's multiple to converge upward toward HD's, we believe the longer-term outlook skews further to upside."

For an analyst ratings summary and ratings history on Lowe's click here. For more ratings news on Lowe's click here.

Shares of Lowe's closed at $232.51 yesterday.

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