Lowe's Investors Finding Attractive Price To Build Their Position

Shares of Lowe's fell 8 percent in the last one month versus the S&P 500's 1.5 percent drop.

"With still-supportive macro drivers, clarity/consistency around key operating initiatives, and a durable financial algorithm capable of delivering high-teens (or better) EPS growth over the next few years, we see attractive risk/reward with the stock trading at/near multi-year relative/absolute valuation lows," analyst Peter Benedict wrote in a note.

Related Link: Lowe's Management May Have "Found Religion" On Cost Controls, Says Argus

Benedict, who reiterated his Outperform rating on the stock, sees good support for continued "GDP-plus" sector growth over the next few years on favorable indicators such as income/wages, home prices and turnover.

Long-Term Goals, Expectations

Moreover, the analyst believes management's 25–30bps of EBIT percent expansion per comp point >1 percent is sustainable post-2017, providing scope for EBIT expansion beyond the current 11 percent goal longer term.

"Importantly, we see opportunity for further improvement ahead as LOW looks to centralize delivery/installation operations, leverage labor/marketing spend, and enhance localization capabilities," Benedict noted.

In addition, the company expressed confidence in "at least" doubling RONA's operating profitability in the next five years.

Notably, Benedict sees upside to the existing $4.70 FY17 EPS goal given RONA accretion (Street: $4.72).

"With core-LOW flow-through rates likely to hold and RONA accretion on tap, we see good support for high-teens (or better) EPS growth through FY19 (implying EPS $6.50+)," Benedict added.

On the valuation front, the analyst noted that the current $71 level looks "compelling" as it represents about 15x his FY17 estimated EPS vs. 19x three-year average and 6 percent discount to S&P 500 vs. 18 percent three-year average premium.

Benedict has a price target of $88 on the stock, which is currently up 0.52 percent to $71.32. Based on Friday's close, the target represents a potential upside of 24 percent.

Full ratings data available on Benzinga Pro.