Credit Suisse Downgrades Home Depot, Lowe's On Reduced Upside Projections

Home improvement retailers remain Credit Suisse's best sector from a structural perspective, and the sell-side firm's expectations for earnings growth remain unchanged. Yet the firm said Wednesday that it sees less EPS upside over the next year versus current estimates, triggering a downgrade of two of the biggest names in the sector.

The Analyst

Credit Suisse's Seth Sigman downgraded Home Depot Inc HD from Outperform to Neutral with a price target lowered from $222 to $204.

The analyst downgraded Lowe's Companies, Inc. LOW from Outperform to Neutral with a price target lowered from $115 to $111.

Home Depot

Home Depot remains a best-in-class within the entire retail group and is backed by a "superb" management team, Sigman said in the downgrade note. (See his track record here.) 

The case for continued upside in Home Depot's stock is difficult to make, as it is already trading at a premium valuation and the housing market appears to be entering a period of "uncertainty," the analyst said. 

Credit Suisse's revised $204 price target is based on a 20 times multiple on estimated 2019 EPS of $10.57, which is lowered from a prior estimate of $10.57.

Lowe's

Under the leadership of Marvin Ellison, Lowe's should show investors a notable improvement in sales and operating profit, Sigman said in a separate downgrade note. The problem is that Street estimates are already factoring in future improvements, with the stock trading at 18 times NTM EPS — a multiple that is nearly inline with Home Depot, he said. 

Credit Suisse's revised $111 price target is based on a 19 times multiple on estimated 2019 EPS of $5.84, which is lowered from a prior estimate of $5.81.

Price Action

Home Depot shares were down 4.58 percent at $184.72 at the time of publication Wednesday, while Lowe's shares were down 3.14 percent at $102.65. 

Related Links:

Should Investors Buy Home Depot Or Lowe's? This Analyst Has The Answer

A 'Layer Of Protection' From Amazon Is A Dividing Line In Retail