Piper Jaffray Is Upgrading Lowe's, Says Too Many Tailwinds To Ignore

In a report published Thursday, Piper Jaffray analyst Peter Keith upgraded shares of Lowe's Companies, Inc. (NYSE: LOW) to Overweight from Neutral with a price target raised to $88 from a previous $79 based on a "confluence" of favorable sales tailwinds.

Keith conducted a home improvement survey that indicated a favorable outlook on household remodeling spending for 2015 and into 2016. The survey showed that 58 percent of households plan on spending more in 2015 versus a year ago with a "healthy" increase in spend per home project. Moreover, an uptick in individuals utilizing Home Equity Line Of Credits (HELOCs) to pay for large ticket projects was seen.

The analyst said that in the first quarter 2014, Lowe's comped +0.9 percent, which was partially weighed down by a cold Spring as the company estimated that weather was a 150 basis point drag to the first quarter and deflation was a 35 basis point headwind. However, an earlier start to spring this year should provide a nice tailwind to first quarter comps as much of the U.S. is experiencing a year-over-year increase in temperatures when compared to a year ago.

Finally, March adjusted Census Bureau data showed an acceleration on a year-over-year perspective. March data was +6.3 percent year-over-year versus February of +5.7 percent year-over-year. This favors Lowe's given its 0.88 correlation with the Census Bureau data over the last 10 years, which the analyst stated implies another solid comp for the company in the first quarter.

Bottom line, the various positive tailwinds should drive comp growth of +5 percent for the next two years. As such, the analyst raised his 2015 earnings per share estimate to $3.41 (from $3.29) while raising his 2016 earnings per share estimate to $4.18 (from $3.95).