At $187.76 the consensus price target is below the current price action but does not fully reflect the recent trend. Over the past month, there’ve been 8 analyst calls, all bullish, with 3 rating upgrades and 5 price target hikes. Of those 8, the consensus for the share price is closer to $226 or about 12% upside and we think that target is a little low.
Analyst Michael Lasser of UBS:
Lowe’s presents a value relative to the broad market by trading at 19X this year’s earnings compared to 22X for the broader market. At the same time, the company is in much better financial shape and pays a very safe 1.25% dividend as well. In our view, the company should not only be able to sustain its 57-year history of increases but also its high 16% distribution CAGR.
Home Depot (NYSE:HD), on the other hand, yields closer to 2.0% but trades at a 24X/23X multiple and with a less robust outlook for dividend growth. Home Depot has a 12-year history of dividend increases and should be able to sustain future increases but at a reduced rate to the current 20% CAGR. Home Depot’s payout ratio is closer to 50% of earnings which greatly reduces its ability to sustain robust increases.
Analyst Brian Nagel of Oppenheimer:
Shares of Lowe’s were not immune to the malaise that gripped the market this week. The stock pulled back a little more than 5.0% in what looks like a knee-jerk reaction to news. The price action is already finding support at the 30-day moving average where think buying could be strong enough to hold prices up. If not, shares of Lowe’s may pull back into a deeper correction with a possible bottom at $180.
The risk for investors is the earnings report next week and how the market reacts. We are sure the report will be good, possibly much better than consensus, the question is whether the stock will be rewarded for it. So, while Lowe’s is an attractive buy going into earnings it is also a risky one that bears caution. Even if the earnings report is good there may still be a better time to buy.