Expect A Strong Q1 From Home Improvement Retailers, Jefferies Says

Jefferies analyst Daniel Binder has some high hopes for Lowe’s Companies, Inc. LOW and Home Depot Inc HD this earnings season. According to Binder, investors should expect earnings beats from both companies in Q1. However, he predicts that it may take more than a modest beat to move the two stocks.

“We are now above the Street on both names, but for shares to move higher on the prints, they will likely have to see big beats,” Binder explains.

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He notes that the warm start to remodel/construction season likely provided a bit of a boost for both names.
Accordingly, Jefferies has upped its Q1 EPS estimates for Home Depot from $1.32 to $1.40 and for Lowe's from $0.84 to $0.86.

Jefferies still sees Home Depot as the better investment of the two due to its structural real estate advantage, its professional focus, its relative sales outperformance and its strong capital allocation.

In addition to the EPS adjustment, Jefferies has also raised its price targets for both stocks. The firm upped its target for Buy-rated Home Depot from $140 to $156 and for Neutral-rated Lowe's from $74 to $81.

Binder expects that rising home prices, solid employment numbers, wage growth and expanding credit markets will continue to provide tailwinds for the home improvement industry.

Disclosure: the author holds no position in the stocks mentioned.