We are reiterating our BUY rating on Lowe's Companies Inc. (LOW), and raising our target price to $132 from $122. Lowe's reported adjusted 3Q non-GAAP earnings of $1.41 per share on November 20, above the consensus of $1.35 and our estimate of $1.36.
The company saw positive comparable sales in 9 of 13 product categories, with above-average performance in decor, tools and hardware, plumbing and electrical, and lawn and garden. Management was particularly pleased by improving customer service scores from its professional customers and by the better performance in the paint and decorating departments.
Our bullish thesis is more dependent on business improvement than the macro environment, but we should note that Harvard University's Leading Indicator of Remodeling Activity points to 4.6% growth in 4Q19. Our own macro work points to more modest growth, but there are a couple of offsetting factors. The first is that Lowe's management is upbeat on the economic environment. In addition, Lowe's, like Home Depot, is seeing strength in big-ticket discretionary purchases and in the professional segment, which are favorable indicators for the health of the business.
We believe that LOW shares are very attractive based on the company's financial strength and our expectation that margins and earnings will improve. Over the past year, LOW shares are up 32%, nearly double the broader market’s 17% rise.
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