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Home Depot, Lowe's Can Handle Supply  Disruption: Bank of America

'In a supply-constrained environment, we maintain that bigger is better for retail,' wrote Bank of America analyst Elizabeth Suzuki.
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Home Depot  (HD) - Get Home Depot, Inc. (HD) Report and Lowe’s  (LOW) - Get Lowe's Companies, Inc. (LOW) Report are among the retailers best equipped to handle supply-chain disruption, while Bed Bath & Beyond  (BBBY) - Get Bed Bath & Beyond Inc. Report and Williams-Sonoma  (WSM) - Get Williams-Sonoma, Inc. Report are among the weakest, says Bank of America.

“Among the retailers in our coverage universe, the best positioned from the standpoint of strong inventory positions and relatively low reliance on overseas imports are the large home improvement retailers Home Depot and Lowe’s,” wrote Bank of America analysts led by Elizabeth Suzuki.

She has a buy rating on both, with price targets of $411 for Home Depot and $281 for Lowe’s.

“In a supply-constrained environment, we maintain the view that bigger is better for retail, as the largest retailers have the strongest purchasing power with their suppliers and tend to have better leverage over transportation partners,” Suzuki said.

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“Home Depot has chartered its own cargo ships and has also committed to shifting about 10% of its containers to off-hours operations at West Coast ports to alleviate port congestion.”

Meanwhile, Bank of America has underperform ratings on Bed Bath & Beyond and Williams-Sonoma, with a $14 price target for the former and $142 for the latter.

“Retailers that have experienced the most severe inventory draw-downs and source a material percentage of their inventory from overseas are where we see the most risk to the upcoming quarters' sales volumes,” Suzuki sad.

“The home furnishings category in particular appears to have low levels of supply and high reliance on imported product.”

Home Depot recently traded at $363.74, up 1.5%; Lowe’s at $227.20, up 1%; Bed Bath at $14.28, unchanged, and Williams-Sonoma at $188.41, up 1.1%.