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Why Stifel Raised the Target Price for Home Depot and Lowe’s

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On Wednesday, John Baugh of Stifel raised his target price for Home Depot (NYSE:HD) and Lowe’s Companies (NYSE:LOW). He maintained his “buy” rating for both of the companies. Earlier this week, the Census Bureau provided advanced estimates for US retail sales in May. The Census Bureau indicated a 16.4% year-over-year growth in home improvement spending from last year—adjusted for seasonality. So, Baugh raised his second-quarter SSSG expectations for Home Depot and Lowe’s, as reported by The Fly. He said that the strong sales weren’t just from the stimulus or pulled forward demand. Baugh expects the spending on home improvement to continue.

Baugh raised his target price for Home Depot to $276 from $260. The new price target represents a 12-month return potential of 9.1% from the closing price on Wednesday. For Lowe’s, he increased his target price from $149 to $156, which represents a return potential of 13%.

Other analysts’ recommendations for Home Depot and Lowe’s

So far in June, Jefferies and UBS have raised their target prices for Home Depot. Jefferies increased its target price from $274 to $285, while UBS hiked its target price from $265 from $280. As of Wednesday, analysts’ consensus target price was $252.15, which represents a 12-month return potential of 0.5%. Meanwhile, Wall Street favors a “buy” rating for the stock. Among the 32 analysts, 65.6% recommend a “buy,” while 34.4% recommend a “hold.” None of the analysts recommend a “sell” rating.

For Lowe’s, Jefferies raised its target price from $138 to $156 on Tuesday. Overall, analysts’ consensus target price is $138.60, which represents a 12-month return potential of 2.2%. Among the 30 analysts, 83.3% recommend a “buy,” while 16.7% recommend a “hold.”

YTD stock performance

Stifel’s price hike improved investors’ sentiments. Home Depot and Lowe’s closed in the green on Wednesday. Home Depot closed 0.4% higher, while Lowe’s stock increased by 3.0%. So far this year, the companies have returned 14.9% and 13.3%, respectively. Both of the companies have outperformed the border equity markets. The S&P 500 Index has fallen by 3.6% during the same period. Amid the restrictions due to the COVID-19 outbreak, many businesses closed their operations. However, Home Depot and Lowe’s kept their stores open since they sell essential products. People might shift their discretionary spending away from travel, apparel, and entertainment towards the home improvement category due to the pandemic. So, both of the companies will likely benefit from this shift.

Last month, both of the companies reported their first-quarter earnings. Home Depot reported a mixed performance. The company’s sales beat the expectations, while its adjusted EPS was below the expectations. To learn more, read Home Depot Misses Q1 Earnings Expectations, Stock Falls. Meanwhile, Lowe’s reported an impressive performance and beat analysts’ expectations. Read Will Lowe’s Outperform Home Depot in 2020? to learn more.

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