Lowe’s stock does not have a meaningful upside from here: Citi

Shares of Lowe’s Companies Inc (NYSE: LOW) have bounced roughly 17% off their low in mid-June, which, a Citi analyst says, is as far as they go.

Lowe’s stock downgraded to ‘neutral’

On Thursday, Steven Zaccone downgraded Lowe’s stock to “neutral” and lowered his price target to $205 that does not represent a meaningful upside from here. The macro headwinds he quoted in a note to clients include:

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Wallet share shift to services and travel, inflation tightening consumer budgets for big-ticket, higher rates, home prices starting to decline, and recession risk negatively affecting the employment picture.

The recent rally, as per the analyst, further turned the risk/reward less favourable. The macro pressures, including rising promotional risks will make it challenging for Lowe’s to expand its margins, he noted.

In June, retail sales were up 8.4% YoY. The next retail news is scheduled in the coming week, ahead of which, Lowe’s is down 25% for the year.

Lowe’s to report Q2 results next week

Zaccone warns the home improvement retailer will come in shy of the Street estimates, particularly on earnings per share and same-store sales as it reports its fiscal Q2 results on August 17th. He added:

We see the potential to cut FY22 guidance given the weak 1H results. We believe the buy-side is bracing for a miss and guide-down, but we see less likelihood of a relief rally on cut guidance given the negative overhang of a slowing housing market.

Consensus is for the NYSE-listed firm to earn $4.01 a share (up 6.9% YoY) on a 1.9% hit to comparable sales. Lowe’s stock currently trading at a PE multiple of 16.48.

To play the home improvement space, Zaccone recommends Home Depot Inc (NYSE: HD) on continued strength in its Pro business.