By Senad Karaahmetovic
Lowe’s (NYSE:LOW) stock price is down nearly 2% in premarket Thursday after a Citi analyst downgraded shares to Neutral with a $205 per share price target.
The analyst sees growing concerns for home retail, including “wallet share shift to services and travel, inflation tightening consumer budgets for big-ticket, higher rates, home prices starting to decline, and recession risk negatively affecting the employment picture.”
The downgrade call on LOW shares also comes amid the recent stock outperformance as the analyst is now less positive about the risk/reward. LOW stock price is up over 17% since mid-June.
In particular, the analyst sees a risk of LOW missing in SSS and EPS views and the potential for a full-year guidance cut.
“We believe the buy-side is bracing for a miss and guide-down, but we see less likelihood of a relief rally on cut guidance given the negative overhang of a slowing housing market. Our core thesis to downgrade to Neutral is based on a tougher macro backdrop, slowing DIY, rising promotional risk, and a tougher margin expansion path in a weaker sales environment,” the analyst told clients in a note.
Instead, the Citi analyst prefers Home Depot (NYSE:HD) due to its Pro strength.
“We see HD delivering a 2Q beat on SSS & EPS vs. Street with the potential to slightly raise FY22 guidance. We believe the Pro business is driving the near-term strength. Based on our discussions with investors, this is somewhat expected into next week,” the analyst added.