Deutsche Bank Upgrades Lowe’s As It Improves Relative To Home Depot

Deutsche Bank Upgrades Lowe’s As It Improves Relative To Home Depot
By Deutsche Bank AG (GIF format logo) [Public domain], via Wikimedia Commons

Analysts from Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) issued a buy rating to Lowe’s Companies, Inc. (NYSE:LOW), and dropped its target price for the company’s stock from $32 to $30 on Tuesday.

Deutsche Bank Upgrades Lowe’s As It Improves Relative To Home Depot
Source: Wikimedia Commons

Based on the note issued to its investors, Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) cited three reasons behind its buy rating. According to DBS, Lowe’s monthly comp trend is improving and it is closing its gap with The Home Depot, Inc. (NYSE:HD). During the second quarter of the fiscal year, Lowe’s Companies, Inc. (NYSE:LOW)’s comp gap with The Home Depot, Inc.(NYSE:HD) decreased to 2.9 percent from 3.2 percent during the previous quarter. Its comp gap in 2011 was 3.4 percent.

Analysts also expect Lowe’s Companies, Inc. (NYSE:LOW)  to post gains during the next quarters, since the company just implemented its operational initiatives. In addition, the company is committed to fulfill its stock buyback program (50 percent) as scheduled within the next 3.5 years. The company is expected to repurchase a total of $18 billion worth of shares by 2015, despite its decision to reduce the amount of shares to buyback this year from $4.5 billion to $4.25 billion.

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Furthermore, analysts believe that Lowe’s is a good way to play the housing recovery, due to its lower valuation compared with Home Depot’s higher valuation, and the risk reward is favorable based on the $30 target price. The price target is based on 14 times its EPS estimate for 2013. DBS analysts expect a $24 downside risk.

Yesterday, Lowe’s reported its second quarter earnings of 68 cents per share, lower than the 71 cents per share average estimate from analysts. The second largest home improvement retailer said its net sales during the second quarter decreased by 2 percent to $14.25 billion from $14.54 billion during the same period in 2011.  Its gross profit also declined by 3.6 percent to $4.8 billion.

Lowe’s repurchased a total of 36.8 million shares, worth approximately $1 billion during the second quarter. During the first six months of 2012, the company had already bought back 94.7 million shares worth $ 2.75 billion.  The company also paid $166 million in  dividends to its shareholders during the second quarter.

The company lowered its expected earnings to $1.64 per shares from its previous estimate of $1.74 per share to $1.83 per share for 2012, while its expected revenue remained at $50.21 billion.

Lowe’s has 1,712 stores in the United States, 50 in Canada, and 2 in Mexico.

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