Bernstein is pleased with what it sees from Lowe’s. The firm upgraded its shares from market perform to outperform. The firm also raised its price target from $252 to $282, implying a 21% increase from Friday’s closing. Bernstein has been a skeptic of Lowe’s ever since they began covering the company in December. It now sees “a confluence of mutually reinforcing positive trends that we expect will continue.” Analyst Dean Rosenblum said, “Margin growth + Pro momentum + stronger ROIC + an improving market = we’re there.” Rosenblum predicts that Lowe’s operating margin will continue to grow over the next two-year period. He said that Lowe’s was closing the gap between itself and its main competitor Home Depot by focusing on its “Pro” customers, which include contractors and remodelers. “LOW’s Pro sales have grown at an impressive rate for the past 10 quarters. HD has been outpaced in the first 2 quarters of FY23. Rosenblum noted that the huge gains made by LOW’s compared to HD in terms of “primary source-for” preferences for Pros reflect this success. The company’s “win with the Pro” focus — Pro products and job lot quantities; inventory on hand; Pro parking spaces, loaders, and more — improved its perception among Pros who are focused on “speed back to the site.” The analyst said that LOW will continue to gain Pro shares for years. The analyst noted that the operating expenses component of shares will be strengthened as a result. Bernstein also believes that the U.S. overall home improvement market will be strong in the medium to long term. According to the firm, the worst of the market is behind us in the short-term. This makes the firm confident about the market’s prospects in the immediate future. As LOW has closed the Op Margin and [return on invested capital] gap, as well as LOW’s Pro Growth is outpacing HD (as would be the case if LOW was gaining share in Pro from HD, which we think they are), we find it increasingly difficult to justify HD’s multiple premium compared to LOW. We expect the market to see this trend more and more often, Rosenblum stated. Michael Bloom, a CNBC reporter, contributed to this article.
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