Goldman Upgrades Lowe's Companies To Buy (LOW)

Analysts at Goldman Sachs upgrade Lowe’s Companies, Inc. (LOW) from “neutral” to “buy.” A $24.00 price target has been set on the stock, and implies 16% upside potential. Goldman Sachs expects that Lowe’s quarterly EPS will grow substantially in the near future, from 10% in 2Q10 to 18% in 3Q10 and 31% in 4Q10. Key factors behind accelerated growth include gross margin recovery, the full rollout of price optimization, and ongoing penetration form direct imports. The analysts at Goldman Sachs stated, “We upgrade LOW to Buy from Neutral with 5 drivers: (1) Margin recovery after several quarters of subpar trends, driving accelerating EPS growth in 2H10, when many retailers are likely to experience decelerating growth. (2) While sales drivers are admittedly murky, DIY home sales metrics are near long-run troughs. (3) LOW is reinvesting free cash in buybacks and dividends, showing discipline in its capital allocation. (4) The sector’s stable competitive and margin dynamics suggest limited downside if the macro backdrop erodes further. (5) Valuation is modest, allowing for favorable risk/reward.”