BMO Upgrades Lowe's On Economic Improvement In American Southeast

In a report published Tuesday, BMO Capital analyst Wayne Hood upgraded the rating on

from Market Perform to Outperform, while raising the price target from $73 to $81. "Our State Economic Scorecard research points to potentially stronger relative improvement in housing and overall economic activity in the Southeastern states where Lowe's has a larger store footprint," Hood reported. In the event of broadening growth, going forward, with an improvement in relative growth in the Southeastern states, the company is expected to witness accelerating sales, which could in turn narrow its comp store sales gap with

. "The regional outlook coupled with overall 2Q15 housing metrics that point to consistent strengthening in the housing market, and our store visits to LOW and HD, where we continue to observe robust relative traffic give us added confidence in our 2Q15 comp-store sales forecast of 4% growth at Lowe's following disappointing 1Q15 sales," Hood added. In addition, the analyst believes that Lowe's is poised to deliver robust earnings flow through, driven by flat payroll hours, tight control on indirect costs, marketing leverage and fixed cost expense, as well as benefits due to lower D&A expense rate. The 2Q15 and 2015 EPS estimates have been raised, with the analyst expecting the company to deliver about 20 percent EPS growth during FY15-FY17.