Home Depot and Lowe’s will report earnings in a couple of weeks, but Baird argues both stocks are worth buying now because of robust demand for their goods.
Analyst Peter Benedict reiterated Outperform ratings on both Home Depot (ticker: HD) and Lowe’s (LOW). He raised his price targets for both stocks—on Home Depot to $360 from $315 and on Lowe’s to $230 from $200.
Benedict wrote that strong housing market fundamentals are supporting strong home repair and remodeling activity, and backlogs for professionals are still growing. Many consumers are still flush with stimulus money, and significant commodity inflation—higher lumber prices alone could add some 500 basis points to both company’s comparable sales—means that investors are largely anticipating reports from both companies to come in ahead of consensus estimates. While the Street is looking for comps to climb about 18% for the retailers, he thinks they could notch another quarter of mid-20% comp growth.
Yet while beats may be expected at this point, Benedict argues that there’s reason to like the stocks even beyond upbeat first quarters. While at least some spending will shift away from homes in the second half of the year, as more Americans are fully vaccinated, he is still expecting “a durable increase in repair/maintenance activity …well beyond the pandemic.”
Benedict also noted that the pandemic has accelerated household formations and ownership among millennials, a sizable generation that had previously lagged behind in this area. So while comparable sales will necessarily taper off a bit as the year progresses, he thinks “underlying demand will prove resilient.”
Shares of Home Depot closed up 2.1%, at 330.27. The stock is up 24.7% year to date and 49.3% in the past 12 months. Lowe’s shares closed up 1.5%, at $199.20. The stock has gained 24.3% year to date and nearly 86% in the past 12 months, and is up 29% since Barron’s recommended the stock in March.
Write to Teresa Rivas at email@example.com