Saturday Sep 23, 2023

Lowe’s expects strong demand to continue as half of U.S. homes are more than 40 years old

Lowe’s Cos. says that it’s prepared to meet the ongoing demand of a robust housing market where aging homes will be in need of work.

reported fourth-quarter results that beat expectations on Thursday, and gave profit guidance ahead of Wall Street’s expectations.

On the post-earnings conference call, Chief Executive Marvin Ellison was upbeat about the home-improvement market as well.

“Our outlook for the home improvement industry remains strong, supported by very healthy consumer balance sheets, especially for homeowners, and continuing home price appreciation. Persistent solid demand for homes despite an uptick in interest rates is also expected to support residential investment,” Ellison said on the call, according to a FactSet transcript.

“And as a reminder, 50% of the homes in the U.S. are over 40 years old and will continue to require investments for upkeep, and approximately two-thirds of Lowe’s annual sales are generated from repair and maintenance activity. Therefore, we’re encouraged that the macro environment for home improvement remains very supportive.”

Analysts at Truist also noted Lowe’s favorable margin strategy.

“Sales remain robust/consistent on a stacked basis, as more home-centric behavioral changes and the housing supply/demand imbalance continue to drive meaningful home improvement growth,” analysts wrote in a note.

“In contrast to Home Depot’s slight margin compression (although we think investor concerns were overblown), Lowe’s posted a sizable increase in margins in 4Q and is projecting further expansion in 2022, due to continued pricing and productivity initiatives.”

Truist rates Lowe’s stock buy but trimmed its price target to $283 from $293.

Rival Home Depot Inc.
had a record year, but still saw its stock take a sharp fall after investor concern that demand could decline.

See: Home Depot sales reach record $150 billion but shares tumble as high inflation and lower demand expected to take a toll

And: Home Depot leads the list of 20 worst performers in the S&P 500 on Tuesday

“We see Lowe’s benefiting from a spring rebound in the home improvement retailing market, and home remodeling is expected to grow 17% in 2022,” said analysts at CFRA.

“Lowe’s is improving its processes to enhance store product offerings, operational improvement, and widen margins. We think the Pro segment will outperform the do-it-yourself (DIY) segment in FY 23, given affluent households boosting remodeling contracts with Pro customers, and DIYs face inflation pressures and reduce disposable income.”

CFRA rates Lowe’s stock buy with a $275 price target.

Other analysts highlight some of the challenges Lowe’s faces. For instance, Home Depot is still the stronger of the two in the professional category.

“Despite prospects for stronger operating margin expansion and EPS growth fueled primarily by productivity initiatives that continue to gain traction, we remain neutral on Lowe’s as well as home improvement retail given a less sanguine sector outlook for 2022 and traffic declines likely…foretell underlying ticket pressure,” wrote Wedbush in a note. Wedbush has a $240 price target on Lowe’s shares, down from $260.

“We continue to prefer Home Depot over Lowe’s given its higher exposure to the faster-growing Pro segment.”

Don’t miss: ‘Wealth creation through housing is not guaranteed’: Behold, the most overvalued housing markets in America

And Raymond James takes note of the investments that Lowe’s is making in its supply chain. Ellison discussed the shift to a “market-based delivery model” that moves fulfillment away from individual stores.

Raymond James rates Lowe’s stock market perform.

Lowe’s stock was down 0.7% on Thursday, and has run up 34.6% over the last year. The S&P 500 index
has gained 12% over the past 12 months.

Back to Top