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Lowe's Stock Could Blast 40% Higher, According to Analyst

By Eric Volkman - Dec 4, 2020 at 7:08PM

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Durable consumer trends should result in higher-than-expected profitability for the company.

A prominent Lowe's ( LOW 1.38% ) bull is charging harder on the company's stock. Morgan Stanley analyst Simeon Gutman on Friday raised his price target on the home improvement retailer, upping it to $210 per share from the previous $190 while maintaining his overweight (read: buy) recommendation.

The new target is exactly 40% higher than Lowe's most recent closing stock price.

Gutman made his revision on the belief that the current average analyst earnings projections for the company underestimate a critical factor: demand for home improvement goods and services. The prognosticator feels it's realistic that Lowe's will hit its target of a 12% EBIT (earnings before interest and taxes) margin in 2021. 

A Lowe's store parking lot with motorized lawnmowers in front.

Image source: Lowe's.

"Indeed, we believe [Lowe's] will nearly reach it in 2020 on a 'normalized' [profit and loss]. This is not appreciated by the market," he wrote in his latest research note on the company.

Gutman believes the broader DIY retail landscape will generally benefit from the anticipated rise in demand. As a result, his per-share earnings estimates for both Lowe's and its arch-rival Home Depot ( HD 2.06% ) are notably above the average for prognosticators following those stocks -- by 13% for Lowe's and 6% for Home Depot.

The Morgan Stanley analyst has also raised his price target for Home Depot stock, although not as dramatically. It is now $300, from the former $295. The new level is 14% above Home Depot's most recent closing stock price.

Neither company had a memorable day in the market on Friday. Lowe's shares fell by 1.3%, against the 0.9% gain of the S&P 500 index. Home Depot declined by nearly 1.6%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$252.13 (1.38%) $3.44
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$416.23 (2.06%) $8.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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