Home improvement retailers Lowe's and Home Depot are facing challenges in returning to positive comparable sales growth, with expectations that significant recovery won't commence until the latter half of 2025. This prognosis stems from the anticipated lag in consumer spending benefits linked to reduced interest rates, as pointed out by analysts at Oppenheimer.
The analysts underscore that both companies are likely to experience declining same-store sales through the first half of 2025. This downturn is attributed to ongoing post-pandemic demand dislocations within the sector and the possibly delayed positive impacts of moderating rates. Last week, a marked reduction of 50 basis points in benchmark rates by the Federal Reserve was met with cautious optimism.
However, as per the insights from Oppenheimer, most investors appear poised to overlook short-term weaknesses in the fundamentals of both chains, anticipating a sales rebound as early as 2025. Analysts highlight that while moderating interest rates can fortify demand for home-related products, the effects may not be immediate.
The relationship between interest rates and consumer behavior is intricate, often subject to delays before manifesting apparent sales improvements. In light of this analysis, Oppenheimer has upgraded Lowe's' performance rating from ‘perform’ to ‘outperform’ and has increased its price target significantly from $230 to $305.
Meanwhile, Home Depot also saw an upward adjustment in its target price from $345 to $400, although Nagel has maintained a ‘perform’ rating on it. For fiscal 2025, Oppenheimer's projections for Lowe's earnings per share (EPS) have been revised downward to $11.85 from a previous estimate of $13.10.
This adjustment positions Oppenheimer's forecast below the broader consensus of $12.66 in earnings. Furthermore, the brokerage anticipates Lowe's fiscal 2026 EPS will rebound to $13.30, still shy of Wall Street predictions of $13.82. Similarly, for Home Depot, Oppenheimer's fiscal 2025 EPS forecast has been adjusted to $14.93 from $15.70, which also places it below the consensus estimate of $15.67.
Expectations for Home Depot's fiscal 2026 EPS are at $15.99, noticeably less than the market's estimate of $17.06. Thus, potential downside risks, particularly around Street forecasts in the immediate term, remain a concern for investors, as underscored by Nagel's observations..