Citi Is A Believer In Lowe's Turnaround Plan: 'We Think The Stock Has Upside From Here'

Lowe’s Companies, Inc. LOW shares have surged over 16 percent in the last six months, bolstered by strong earnings and new management.

The Analyst

Citi Research analyst Kate McShane upgraded Lowe’s from Neutral to Buy and maintained a $112 price target.

The Thesis

Citi analysts remain confident in the company’s turnaround plan, McShane said in the Tuesday upgrade note. (See her track record here.) 

“Recent stock weakness allows us to become more constructive on the name. We think the stock has upside from here based on four key reasons," the analyst said. They are:

• A "robust" turnaround plan led by "strong" management. 
• A solid macro backdrop. 
• The near-term tailwind from hurricanes. 
• Valuation. 

The recent pullback in Lowe's is likely driven by concerns regarding the trends and environment in the housing and remodeling markets, McShane said.

“Longer-term, we think investors are concerned that the company will need to spend more money in order to improve its supply chain to compete in fully serving the omnichannel shopper.”

The housing market is expected to slow slightly going forward in light of tight inventory and affordability issues, the analyst said. Lowe’s improved execution should result in accelerated earnings and stronger supply chain trends, she said. 

“LOW’s CEO has already highlighted at two sell-side events that a lot of what needs to be bettered is process-driven vs. investment-driven; indicating both comp and operating margin improvement.”

Price Action

Lowe’s shares were down 0.91 percent at $97.49 at the time of publication Tuesday. 

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