Citing Slowing Housing, Lowe’s (NYSE:LOW) Downgraded to Neutral by Wedbush

On Wednesday, Wedbush downgraded Lowe’s Companies (NYSE:LOW) to Neutral from Outperform. The firm downgraded the stock because it believes a slowing housing market may pressure the company’s results more than expected.  Wedbush has reduced the price target to $50 from $60.

Read more of the analyst’s thoughts below:

We lower our rating on NYSE:LOW from OUTPERFORM to NEUTRAL and reducing our estimates based on our revised housing outlook. While we continue to believe LOW is now positioned to maintain or gain share as burgeoning operational momentum takes hold, a slowing housing market may pressure results more than expected. We lower our 2014 comp estimate to 3.3% vs. guidance of 4% and even higher embedded expectations, in our view. Our 2014 EPS estimate goes to $2.57

vs. guidance of $2.60 and consensus $2.63. Our 2015 comp estimate goes to 2.6% and our EPS estimate goes to $3.03 vs. consensus $3.18.

Housing slowdown to clip comp growth. Based on evidence over the past few months and our views on housing affordability, accessibility and normalized demand, we expect home price growth to slow markedly in 2014—to the lowsingle- digit range—and we expect housing turnover to decelerate to a similar level. We believe this may clip housing’s contribution to LOW’s comp in 2014 by 50-100 bps more than anticipated, with the impact largely in the back half of the year given the typical lag effect of housing market impacts to home improvement sales. See our industry report published today, Hope Springs Eternal or Housing May Not Blossom This Spring?, for more detailed analysis on housing. Whether the economy picks up steam to offset the impact of decelerating housing trends remains an outstanding question, as well.

Continuing to invest for the future. LOW has invested to stabilize its business and has now positioned itself to at least grow with the market, in our view. We look favorably on the company’s initiatives to propel market share gains though innovative investments, but the timing may not be ideal if the housing market slows. For example, LOW is looking to propel big ticket market share with new “customer experience” investments comprising new pods or vignettes in key categories such as bath so that customers can see and feel products of distinct styles like they might appear in their homes.

Lowe’s Companies, Inc. (NYSE:LOW)’s stock on March 5, 2014 had a closing price of $50.35. Its fifty two week range is $37.09 – $52.08. The company’s total market capitalization stands at $52.66 billion. The average trading volume for the stock is 7.87m shares. The company has 1.05 billion outstanding shares.


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