Why KeyBanc Prefers Lowe's, Central Garden & Pet Over Home Depot

Trends in the home improvement industry are strong, according to KeyBanc Capital Markets data. 

The Analyst: Bradley Thomas has an Overweight rating on Lowe’s (NYSE:LOW) with a $165 price target; a Sector Weight rating on Home Depot (NYSE:HD); and an Overweight rating on Central Garden & Pet Company (NASDAQ:CENTA) with a price target raised from $38 to $40.

The Home Improvement Takeaways: During the second quarter, the indexed spend growth at Lowe’s and Home Depot’s was the strongest “we have ever seen in our data for the respective companies,” Thomas said in a Sunday note. (See his track record here.)

“We expect investments in the home to be a semi permanent shift in behavior during what seems to be an extended period that COVID-19 will impact the country,” the analyst said. 

Looking ahead, he said home-related spending could benefit from a $500-billion wallet share as more consumers reduce their expenditures on travel, entertainment and dining out.

The retailers have seen robust store growth in the months of June and July, Thomas said. 

The analyst prefers Lowe’s over Home Depot given Lowe’s larger exposure with the DIY customer.

He reiterated an Overweight rating on Central Garden & Pet, which Thomas said is expected to benefit from garden and pet category growth.

HD Price Action: Home Depot shares were up 0.38% at $266.50 at last check Monday. 

LOW Price Action: Lowe's shares were up 1.04% at $150.46. 

CENTA Price Action: Central Garden & Pet shares were growing 5.02% to $36.39.