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Home Depot, Lowe's Shares Ease After Oppenheimer Downgrade

Home Depot and Lowe's are expected to be hurt by near-term risk while their long-term view is favorable, Oppenheimer said, downgrading both.

Shares of Home Depot  (HD) - Get Home Depot, Inc. (HD) Report and Lowe's  (LOW) - Get Lowe's Companies, Inc. (LOW) Report were gently pressured Friday after analysts at Oppenheimer downgraded the home-improvement retailers on concern about near-term risks. 

Home Depot and Lowe's were both downgraded to perform from outperform. Home Depot's price target was lowered to $305 from $320 and Lowe's to $180 from $185. 

"To be clear, our favorable intermediate- to longer-term stance for the group and HD and LOW is unchanged," analyst Brian Nagel said. 

'However, nearer term, we're increasingly concerned that the market is becoming too lax toward chances of a post-covid-19 sales growth downshift at HD/LOW and [the] potential impact on shares,"

In a "post-pandemic reset" for home retail, Oppenheimer has a more favorable outlook for Lowe's than Home Depot given its strengthening margins and discounted valuation. 

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The firm lowered its fiscal 2021 earnings EPS estimate for Home Depot to $11.24 from $11.84. Currently, Wall Street is expecting fiscal 2021 earnings of $11.96. 

For Lowe's, its fiscal 2021 earnings are now expected to be $7.91 per share, up from its prior guidance of $7.49 a share but still short of consensus estimates of $8.49 a share. 

"In a less likely downside scenario, we are concerned somewhat that recent outsized comp gains within home improvement might to some extent reflect a demand pull forward, thereby impacting sales of durables and other items through 2021," Nagel said. 

The underlying fundamentals of the home-improvement-retail sector are still strong as U.S. home buyers take advantage of historically low mortgage rates and opt for larger units. 

At last check Home Depot shares fell 0.9% to $277.58 while Lowe's fell 0.6% to $162.84.