Lowe's Dropped From Conviction Buy List On 'Upside, Visibility, And Positioning'

Goldman Sachs’ Matthew J. Fassler believes industry growth trends in the home improvement retails sector are likely to moderate, “as both housing turnover and sector sales approach long-run average levels.”

Fassler maintains a Buy rating on Lowe's Companies, Inc. (NYSE: LOW), while lowering the price target from $95 to $86.

Removed From CL

Removing the stock from the Conviction Buy List, the analyst mentioned that “the sector’s sales edge is already showing signs of ebbing.”

Fassler lowered the EPS estimates for the company for 2017 and 2018 from $4.60 to $4.52 and from $5.50 to $5.30, respectively, attributing the reduction to the more subdued demand growth expected in 2017–18.

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Upside Tougher

The estimates are also below consensus for Q3, partly to reflect a lower sales estimate and the acquisition of RONA, as well as the tough weather comparisons that are expected to make it more difficult for Lowe’s Companies to achieve upside in Q4 and Q1.

“This combination of factors suggests that the stock no longer offers the combination of upside, visibility, and positioning versus consensus,” the analyst explained.

Fassler also expects Lowe’s Companies’ EPS growth to come under pressure with the fading of macro tailwinds that were observed over the past two months.

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