On Thursday, Evercore ISI adjusted its price target for Lowe's Companies, Inc. (NYSE: NYSE:LOW), increasing it to $290 from the previous $270, while maintaining an In Line rating for the stock. The home improvement retailer has been focusing on several strategic areas since CEO Marvin Ellison's tenure began in 2018, which the analyst believes have laid a solid foundation for the company's future growth.
Lowe's has made significant strides in operational and margin improvements, productivity gains, return on invested capital (ROIC), technology investments, and the expansion of its professional customer base. The home improvement industry, with a total addressable market (TAM) of $1 trillion, is led by Lowe's and its competitor Home Depot (NYSE:HD), both considered rational actors within the space.
Despite the challenges of the past three years, including the post-COVID environment and the Federal Reserve's tightening monetary policy, Evercore ISI anticipates that Lowe's is on the cusp of a gradual recovery extending into 2025. The firm projects a modest increase in comparable store sales (comps) of 1%, driven primarily by professional customers, while do-it-yourself (DIY) consumers remain cautious.
The analyst suggests that high-income households are expected to spend more on home improvement projects, which could potentially boost comps back to 2%. After 14 quarters of negative comp traffic, there is a growing confidence that earnings could begin to grow again in 2025 if comps turn positive. The market consensus for Lowe's earnings is around $12.50, slightly down from pre-analyst day estimates due to anticipated reductions in share buybacks. Evercore ISI, however, forecasts earnings at $12.70, reflecting a more optimistic view for 2025.
The $290 base case price target is predicated on the assumption that Lowe's will trade at a slight premium multiple based on a projected recovery in earnings to $13.50 by 2026. The bull case scenario suggests a potential upside to $350, which could materialize if a more significant recovery in big-ticket, DIY-focused sales leads to over 4% in comps. In the meantime, Evercore ISI expresses a preference for Sherwin-Williams (NYSE:SHW) in their Top Five portfolio, due to its exposure to need-based projects and Home Depot's potential for Pro mix and TAM expansion.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.