Lowe's Delivers Beat And Raise, But Analysts Are Still Cautious

Lowe’s Companies, Inc. LOW shares are up more than 9 percent after a fourth quarter earnings report that saw an impressive 5.1 percent increase in total and U.S. comparable sales, narrowing the gap with the company's closest competitor Home Depot Inc HD by 210 basis points.

According to Wedbush analysts, favorable weather, solid merchandising and execution likely drove stronger than expected sales. Softer gross margins by Lowe's, likely due to the company's 2016 acquisition of Canadian hardware retailer Rona, were more than offset by strong SCG&A leverage

Despite the solid quarter, Home Depot was able to deliver slightly higher comp growth of 5.8 percent. Lowe’s 2017 guidance came in above expectations with comps expected to increase around 3.5 percent.

Wedbush analysts were cautious about the industry moving forward however, maintaining a Neutral rating on Lowe’s with a $77 price target.

“While we believe the housing cycle still has legs, the best is likely behind us," the analyst said. "A bevy of negative data points suggest a modest slowdown in underlying home improvement sales growth ahead…LOW’s operational and merchandising momentum may have slowed, making it challenging to close the comp gap with HD, which we believe is key for relative share price outperformance."

Shares traded recently at $81.07. Wedbush has a Neutral ratings and $77 12-month price target on the stock.