Goldman Sachs’s ratings

On Thursday, Goldman Sachs initiated coverage on Home Depot (HD) and Lowe’s Companies (LOW) with “buy” ratings and price targets of $235 and $119, respectively. Home Depot’s price target represents a potential upside of 9.8% from its closing price of $214.04. Lowe’s price target represents a potential upside of 13.5% from its closing price of $104.87.

As reported by CNBC, the growth in Home Depot’s market share, its exemption from uncertainty related to the trade war with China, and its investments in delivering a frictionless omni-channel experience have made Goldman Sachs bullish on its stock. Goldman Sachs is also optimistic about Lowe’s, which is currently trading at a valuation multiple that’s close to its historical average and has undertaken key initiatives to drive growth.

Why Goldman Sachs Is Bullish on Home Depot, Lowe’s

Other analysts’ recommendations

Overall, analysts are favoring “buys” on Home Depot, with 67.6% of the 34 analysts that follow the stock giving it “buy” ratings and 32.4% giving it “holds.” No analysts are in favor of “sell” ratings. Analysts have given Home Depot a 12-month price target of $207.93, down 2.9% from its current price of $214.04.

After Home Depot reported its first-quarter earnings on May 21, Jefferies, JPMorgan Chase, and RBC raised their price targets. Jefferies hiked its price target from $219 to $242, JPMorgan increased its price target from $203 to $204, and RBC raised its price target from $213 to $229. During the first quarter, Home Depot outperformed analysts’ EPS and revenue expectations. Read more about Home Depot’s first-quarter performance in Key Takeaways from Home Depot’s Q1 Earnings.

Although Lowe’s reported lower-than-expected EPS in the first quarter, analysts still favor “buy” ratings on its stock. A total of 68.8% of the 32 analysts covering it have given it “buys.” The remaining 31.2% have given it “holds.” However, since Lowe’s reported its first-quarter earnings on May 22, Barclays, SunTrust Robinson, UBS, Baird, Wedbush, Citigroup, RBC, Raymond James, and Telsey Advisory Group have all lowered their price targets. On average, analysts have a 12-month price target of $113.83 on the stock. This target implies a rise of 8.5% from its current price of $104.87.

Why Goldman Sachs Is Bullish on Home Depot, Lowe’s

Stock performance

Goldman Sachs’s bullish calls on Home Depot and Lowe’s on Thursday appear to have increased investor confidence. Both companies ended the day in the green. On Thursday, Home Depot stock rose to a high of $214.08 before closing at $214.04. The movement implied a rise of 1.6% from its previous day’s closing price. On the same day, Lowe’s stock price hit a high of $105.13 before ending the day at $104.87, representing an increase of 1.7% from its previous day’s closing price.

The surge in Home Depot stock since the beginning of June has allowed the company to outperform the broader equity market. YTD (year-to-date), Home Depot has returned 24.6%, while the S&P 500 Index has risen 19.7%. Lowe’s has returned 13.5% so far in the year. Its lower-than-expected first-quarter earnings and lower EPS guidance negatively affected its stock price.

Valuation multiple

On Thursday, Home Depot was trading at 21.2 times analysts’ 2019 EPS estimate of $10.11 and 19.4 times analysts’ 2020 EPS estimate of $11.01. Analysts expect its EPS to rise 2.3% in 2019 and 8.9% in 2020.

On the same day, Lowe’s was trading cheaper than Home Depot at 18.8 times analysts’ 2019 EPS estimate of $5.57. It was also trading at 15.9 times analysts’ 2020 EPS estimate of $6.60. Analysts expect its EPS to rise 9.3% in 2019 and 18.3% in 2020.

On the day, Goldman Sachs also initiated its coverage on Williams-Sonoma with a “buy” rating.

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