Staying Neutral on Lowe's

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Includes: HD, LOW
by: Zacks Investment Research

We are maintaining our Neutral recommendation on Lowe’s Companies, Inc. (NYSE:LOW), one of the largest home improvement retailers, with a target price of $26.00.

Lowe’s boasts a proven strategy of investing in stores to enhance customer-shopping experience by improving point-of-sale and directional signage, and adding more products. The company’s sustained focus on Everyday Low Prices has helped it to grow its market share.

The company is also actively managing its capital. Lowe’s is rationalizing its capital expenditures, including store-remerchandising efforts, to improve its return on investment. As a result, the company expects to generate substantial future cash flows. The company’s strong liquidity will position it to drive future growth.

We also appreciate the company’s rational approach of cutting new store growth targets, given the weak consumer environment and the trends in the housing market. Although the economy is showing signs of revival with improvement in comparable-store sales trends, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer-spending rebounds.

Lowe’s, which offers a wide range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance, also faces stiff competition from The Home Depot, Inc. (NYSE:HD). This may weigh upon the company’s results.