SunTrust Downgrades Home Depot And Lowe's, Sees Slowing Comps

Two major home-improvement retail chains were downgraded Tuesday on a disconnect between their stock performance and that of their suffering suppliers.

"They should move in response to the same metrics," SunTrust's Keith Hughes said in a research note. "The divergence between the retailers and suppliers is not sustainable."

Hughes cut his rating to Neutral on both The Home Depot, Inc. (NYSE: HD) and Lowe's Companies, Inc. (NYSE: LOW), from Buy.

Growth in same-store sales will slow "at some point in 2014" reflecting a slow-down in sales of big ticket items, Hughes said.

The analyst added, however, that a recovery in the home-improvement retail market is continuing, "but at a slower rate than we expected."

Hughes said the downgrade is unrelated to Home Depot's recent customer data breach, which will have "minimal impact" on financial performance.

While Home Depot and Lowe's are each up more than 10 percent in the past three months, home building suppliers haven't performed as well.

Earlier, Barclays cut its forecast for residential construction and downgraded Masco Corp. to Equal-weight from Overweight. "We doubt that the dysfunction in the housing market will be resolved quickly," Barclays' Stephen Kim said.

Home Depot traded recently down 0.6 percent to $90.03 per share; Lowe's changed hands at $52.08, off 0.8 percent.

Several home improvement suppliers gained slightly on Tuesday, including Masco, Mohawk Industries, Inc. and Fortune Brands Home & Security Inc.