JPMorgan analysts upgraded Lowe’s Companies (NYSE:LOW) to Overweight from Neutral and added the stock to its Focus List on Monday. They also raised the target price to $265 from $210.
“We continue to believe that goods share of wallet headwinds are moderating with trends ultimately reverting back toward wage growth, as this is historically the barometer for consumption trends,” analysts noted.
Moreover, analysts estimate that the home improvement sector's current share of consumer spending is nearly 5% below its pre-COVID levels, with the do-it-yourself (DIY) segment, which constitutes 75% of Lowe's (LOW) sales compared to 50% for Home Depot (NYSE:HD), facing greater challenges since the post-COVID normalization began in early 2021.
Also, they note that Lowe's largest sales category, appliances, which accounts for 13.9% of its revenue versus 9.2% for Home Depot, is more advanced in the deflation process.
The housing market is expected to witness a 150 basis points decrease in rates within the next year, potentially lowering mortgage rates to about 5.5% by January 2025, and to around 6% by September 2024, assuming stable spreads.
Historically, when mortgage rates hit 5.5%, sales of single-family existing homes (EHS) reached roughly 4.3 million, indicating a potential growth of over 20% from current figures.
“While we continue to think that the rebound will be partly muted by the locked-in mortgage rate dynamic, the sheer potential magnitude of such a recovery suggests a strong acceleration in trends against arguably low consensus expectations.”
“As indicated by our note title, we believe it is widely expected that LOW will guide somewhere in the $12.00-$12.50 range for 2024 to clear the decks,” analysts said.