UPDATE: ISI Group Upgrades Lowe's Companies to Buy on Multiple Positive Factors

In a report published Wednesday, ISI Group analyst Greg Melich upgraded the rating on Lowe's Companies LOW from Neutral to Buy, and raised the price target from $40.00 to $46.00. In the report, Melich noted, “Margins can hit 10% vs 7%, if productivity grows 20% to $300/ft. It may take several years, but if the industry remains rational, margin expansion & buybacks should take earnings to $2.85 by 2014. ~50% of the market cap can come back to shareholders by 2016. Sales normalization and capex cuts should allow LOW to return $21B in capital (3/4 buyback, 1/4 dividend) between 2013-2016. Versus HD, the market doesn't appear to have the same level of conviction on management's longer-term intentions on this front. Recent indications of finding discipline on capex, store growth and inventory. Bottom Line: LOW is a solid name in a rational, high return space. LOW and HD remained rational through the bust, with gross margins stable and RNOA held above 7% for both. There is a lot of leverage in both, but LOW will likely lag HD in the near term as HD benefits from better traffic trends.” Lowe's Companies closed on Tuesday at $40.29.