Lowe's downgraded at Evercore ISI, cites slowing home improvement demand
A slowdown in home improvement demand could spell trouble for Lowe's future growth outlook, Evercore ISI says. "Lowe's is above average in pricing power and is clearly benefiting from the housing shortage/home price improvements," analyst Greg Melich wrote in a note to clients Wednesday as he downgraded the stock to an in line recommendation from its prior outperform rating. "Our downgrade is based on the view that slower [home improvement] demand and disinflation could push comps lower in 2023, making margin gains muted," Melich said. In the home improvement market, Evercore ISI views shares of Home Depot more attractively, given that retailer's Pro business and exposure to contractors and professionals. Lowe's shares have slumped about 25% this year (vs a 30% loss at Home Depot). Evercore ISI's new $210 price target (down from $220) implies 9% potential upside for Lowe's from Tuesday's close. Despite a tricky outlook ahead, Evercore ISI expects Lowe's to benefit from damage brought about by Hurricane Ian. About 8% of Lowe's total stores sit in the areas most affected by the storm, Melich noted. "Assuming that sales in associated stores have 10% increased demand (after accounting for the removal of offsetting project reduction), the incremental comp lift could be in the 80-100bps range for LOW and 50-80bps for HD in Q3 alone," he wrote. Lowe's fell about 2% in premarket trading Wednesday following the downgrade. — CNBC's Michael Bloom contributed reporting