Home improvement retailers
will report first-quarter earnings later this month, and analysts are scrambling to raise their price targets on the stocks ahead of the results.
Wells Fargo’s Zachary Fadem is the latest to get more bullish on the shares. On Tuesday, he reiterated Overweight ratings on both stocks, while raising his price target on Home Depot (ticker: HD) to $360 from $330, and his target on Lowe’s (LOW) to $225 from $210.
Home Depot is up 0.6% to $334.91 in recent trading, after rising 26.1% year to date and 49.5% in the past 12 months. Lowe’s is up 1.2% to $202.73. It has gained 26.3% year to date, nearly 85% in the past 12 months, and has jumped more than 30% since Barron’s recommended the shares in March.
Fadem does, however, think that the near-term upside for the shares might be limited. While recent catalysts—such as government stimulus and strong housing trends—are likely to lead to upbeat first quarters for both companies, the stocks’ recent rallies already largely reflect that.
Even so, he raised his first-quarter comparable sales forecast for Home Depot to 25%, above consensus estimates, and for Lowe’s to 29.5%, the highest on the Street. He points to strong sales trends at other companies, from power tools to appliances.
The longer-term the picture gets even brighter. Fadem writes that “a new housing cycle is just getting started, as leading indicators remain robust, interest rates still low, and the consumer environment (GDP, jobs, etc.) remains as strong as we can remember.”
That means he is less concerned about the stocks’ valuations—which sit above historical levels—given the ability for Home Depot and Lowe’s to see ongoing impressive same-store sales growth. “[Y]et consensus greatly under-appreciates the magnitude of potential fiscal 2021+ upward revisions,” he writes.
Fadem isn’t alone in his enthusiasm about the stocks. Earlier this week, Baird boosted its price targets for Lowe’s and Home Depot, and so did Citigroup. Much like Fadem, these analysts argue that a robust first quarter won’t be the end to either company’s winning streak, considering continued demand for housing and a backlog of professional business.
Write to Teresa Rivas at [email protected]