Lowe's Earns Itself A Double-Upgrade From Bernstein

Analysts at Bernstein initiated coverage of Lowe's Companies, Inc. (NYSE: LOW) last February with a bearish stance, but nearly one year later the firm has three compelling reasons to turn bullish.

The Analyst

Bernstein's Brandon Fletcher upgraded Lowe's' stock from Underperform to Outperform with a price target boosted from $69 to $125.

The Thesis

The case against owning Lowe's'' stock was three-fold, Fletcher said in a note: a potential slowdown in the home improvement market, integration challenges stemming from its 2016 acquisition of Canada-based RONA, and uncertainty relating to any SG&A improvements.

Much has changed since the firm's initiation, most notably an uptick in the U.S. economy and consumers' "continued infatuation" with homes, a Canadian housing bubble market that has yet to materialize, and a positive impact from D.E. Shaw's stake in the company and representation at the board level.

Meanwhile, Lowe's core retail operation remains well positioned with compelling price=points and a "decent defensibility" from online giant Amazon.com, Inc. (NASDAQ: AMZN) and a long growth prospect ahead with the pro customer, Fletcher said. Any concerns investors may have had with the retail operation may have eased due to President Donald Trump's tax reform plan and consumers' strong interest to "spend found money" on their homes.

Bottom line, there are clear signs of a "real change" in management's attitude towards improving the business and while it's still "a long way" behind rival Home Depot Inc (NYSE: HD) it's in a better position now to "directly replicate projects" and find ways to realize SG&A savings.

Price Action

Shares of Lowe's were trading higher by more than 1 percent Monday at $106.01, which is above the stock's 52-week high of $105.60.

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Photo courtesy of Lowe's.