Lowe's Upgraded on Strong DIY Demand from Consumers

Lowe's shares were upgraded to buy as Gordon Haskett says consumers will be investing in do-it-yourself projects for many quarters.
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Lowe's  (LOW) - Get Report stock rose on Tuesday after Gordon Haskett analyst Chuck Grom raised his rating on the stock to buy from hold.

Consumer demand for the Mooresville, N.C., DIY home-improvement retailer's products will remain strong as the economy reopens, he said.

"Enough evidence has emerged in recent weeks to suggest that: (1) consumers' willingness to invest in their home via do-it-yourself projects will continue for many quarters and (2) the recent dislocation in the housing market will likely be short-lived," Grom wrote in a report cited by Barron’s.

Web-traffic data show consumers have continued to utilize Lowes.com in a big way through May, he said. 

Grom has a share-price target of $151 for Lowe’s. That indicates 17% upside over the company's Monday closing price.

Lowe’s shares recently traded at $130.77, up 1.1%. The stock has moved up 23% over the past three months, compared with a 4% rise for the S&P 500.

Morningstar analyst Jaime Katz also gives Lowe’s high marks.

“Post covid-19, when demand normalizes, we expect throughput for home improvement products should depend mostly on changes in the real estate market, which are driven primarily by prices, interest rates, and turnover, given the maturity of the industry,” she wrote in a commentary last week.

“We expect sales to grow at a low-single-digit pace (3%) over the long term, supported by low-single-digit same-store sales (7% in 2020 and averaging about 2.7% over the next decade) and moderate location growth (netting 10 boxes per year after 2020), as household formations rise.”

Katz sees long-term gross margins expanding to around 33% from 31.8% in 2019. She puts fair value for the stock at $111.