Bernstein likes what it’s seeing from Lowe’s . The firm upgraded shares to outperform from market perform. It also hiked its price target to $282 from $252, implying upside of 21% from Friday’s close. Bernstein was on the sidelines on Lowe’s since it initiated coverage in December. However, it now sees a “confluence of positive and mutually reinforcing trends that we expect to continue.” “Margin expansion + Pro momentum + strengthening ROIC + a market poised to improve = we’re in,” said analyst Dean Rosenblum. Rosenblum forecasts Lowe’s will continue to expand its operating margin over the next two years. He added that Lowe’s is closing the gap with its main competitor Home Depot through its “Pro” customer base, which includes contractors and remodelers. “LOW’s has shown impressive Pro sales growth for the last 10 quarters, outgrowing HD in the first two quarters of FY23. Reflecting this success are the enormous gains vs. HD on Pros’ “primary-source-for” preference,” Rosenblum said. The company’s “‘win with the Pro’ focus — Pro products, job lot quantities, inventory on hand, Pro parking spaces and loaders and more — has improved its perception with Pros focused on ‘speed back to the jobsite.’ And we think LOW has years of continued Pro share gain ahead,” the analyst added. He noted that this will also strengthen the company’s operating expense component of shares. Bernstein is also bullish on the overall U.S. home improvement market over the the medium- to long-term. The worst is behind the market in the near-term, making the firm comfortable with the market in the near-term as well, according to the firm. “As LOW have closed the Op Margin gap and the [return on invested capital], and as LOW’s Pro growth is outpacing HD’s (as it would if LOW is gaining share from HD in Pro, which we believe they are), it is increasingly difficult for us to justify HD’s multiple premium vs. LOW, and we expect the market will increasingly see the same,” Rosenblum said. —CNBC’s Michael Bloom contributed to this report.
