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Investing.com -- Jefferies analysts raised their price targets on Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) in a note Monday, citing a structural recovery in home equity withdrawals that could fuel years of increased spending in the repair and remodel (R&R) sector.
“Recent record-setting activity in the Home Equity Line Of Credit (HELOC) market leads us to raise our multi-year forecast for repair & remodel industry spend,” Jefferies wrote.
The firm lifted its price target on Home Depot to $460 from $456 and on Lowe’s to $280 from $275, maintaining Buy ratings on both stocks.
According to Jefferies, “the market has been discounting the EPS tailwind for HD & LOW with no clear shift in homeowner mindset toward monetization.” But they believe that may be changing.
The firm notes that in the first quarter, mortgage holders withdrew nearly $25 billion in equity via second-lien lines of credit, representing a 22% year-over-year increase, the largest first-quarter volume since 2008.
Homeowners are also said to be showing increased interest in big-ticket projects, with Jefferies observing “multi-year peaks in homeowner research for projects like bathroom remodels and door & window replacements.”
The analysts believe this trend, combined with an aging U.S. housing stock and improved financing sentiment, could lift industry growth by an additional 100 basis points.
“HD’s share of incremental R&R projects funded by HELOCs could drive $3B in revenue over the next 3 years, and Lowe’s could earn $1.5B,” they wrote.
EPS growth could follow. “Our C’26-C’28E comp estimates now average ~60 bps above the Street with EPS now averaging 5% above,” Jefferies said, adding that HD’s forward P/E could rise to 27x and Lowe’s to over 20x.
“We believe history supports accelerating EPS growth & multiple expansion,” concluded Jefferies.