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Lowe's stock downgraded to Neutral by analyst on high valuation, played out thesis

EditorRachael Rajan
Published 03/27/2024, 06:47 AM

On Wednesday, Lowe's Companies Inc. (NYSE: NYSE:LOW) experienced a shift in stock rating as DA Davidson adjusted its view on the home improvement retailer from Buy to Neutral, maintaining a price target of $270. The change comes despite the company's significant operational improvements in recent years.

The downgrade reflects a reassessment of Lowe's stock performance and valuation. According to DA Davidson, the retailer has achieved approximately 85% of its operational goals, which were set with the arrival of a new management team in mid-2018. This progress was aimed at enhancing operations and margins, aligning them with those of top-tier retailers.

"With the stock once again outperforming year to date and valuation at the highest it's been since early on during the pandemic, both on an absolute and relative basis, we think shares are due a pause," said the analyst.

The analyst firm's price target for Lowe's remains unchanged at $270, which is derived from a multiple of 20.5 times the estimated earnings per share (EPS) for the year 2025. This estimate is noted to be slightly below the consensus, indicating a cautious perspective on the company's future earnings potential.

InvestingPro Insights

Lowe's Companies Inc. (NYSE: LOW) has been a topic of interest for investors, especially following the recent stock rating adjustment. To provide additional context to the article, let's delve into some key metrics and tips from InvestingPro that could inform investor decisions.

InvestingPro Data indicates that Lowe's has a market capitalization of approximately $143.86 billion, reflecting its significant presence in the retail sector. The company's P/E ratio stands at 19.24, and when adjusted for the last twelve months as of Q4 2024, it shows a slightly lower figure of 18.67. This could suggest that the company is trading at a reasonable valuation relative to its near-term earnings growth. Additionally, Lowe's demonstrates a robust return on assets of 18.07% for the same period, highlighting efficient use of its asset base.

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When it comes to performance, Lowe's has experienced a 1-year price total return of 34.7%, which aligns with the strong stock performance mentioned in the article. An InvestingPro Tip highlights that Lowe's stock generally trades with low price volatility, which might be appealing for investors seeking stability in their portfolio.

Moreover, another InvestingPro Tip points out that Lowe's has raised its dividend for 40 consecutive years, underscoring its commitment to returning value to shareholders. This is a significant consideration for income-focused investors, especially in the context of the company's recent operational improvements.

For those interested in further insights, there are additional InvestingPro Tips available for Lowe's, which can be found at Investors can use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of information to help make informed investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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