Nomura Initiates Coverage On Lowe's Companies, Home Depot

Nomura initiated Neutral ratings Tuesday on Lowe's Companies, Inc. LOW with a $70 price target and Home Depot Inc HD with a $110 price target.

Analyst Jessica Schoen Mace commented, “After a slow start to the year, Lowe’s has driven solid sales growth of 4.6 percent to date in 2014 while improving profitability by 70bps, as its recent initiatives have lined up with strong underlying market trends and begun to pay off."

Mace saw “potential upside in Lowe’s opportunity to narrow the gap to its largest competitor across several metrics (sales per square foot, average annual Pro spend, and operating margin). However, we highlight the risk associated with maintaining accelerated comps of 4 percent in light of a competitive market. Our 2015 EPS estimate of $3.25, based on 3.5 percent comp growth, reflects this risk.”

The firm set Lowe’s FY14E EPS at $2.67 and FY15E EPS at $3.25.

Mace was “encouraged by the improvements and advantages in Home Depot’s infrastructure and product offering that enable it to lead the industry in serving its customers.”

“Our caution [on Home Depot], while moderate, comes from frequent crossshopping in the industry, which creates competitive pressures, difficulty improving already efficient operations at peak margins of 12.5 percent, and lack of visibility into home price appreciation continuing at its recent pace,” according to the analyst note.

The firm set Home Depot’s FY14E EPS at $4.45 and FY15E EPS at $5.20.

Lowe's Companies closed at $64.22, down 1.68 percent.

Home Depot closed at $97.06, down 2.99 percent.