Wedbush On Lowe's: 'A New Day' Has Arrived

Lowe's Companies, Inc. LOW this week hosted an analyst day presentation in which management, under new CEO Marvin Ellison, offered a "compelling roadmap" of growth, according to Wedbush.

The Analyst

Wedbush's Seth Basham maintains a Neutral rating on Lowe's with an unchanged $95 price target.

The Thesis

Basham said Lowe's management offered a "reasonable" 2019 guidance of around 2 percent sales growth, 3 percent comps, 30 basis points of operating margin leverage to 9.6 percent and also announced the exit of its Mexican retail operations and several non-core U.S. operations. The company also offered a path to lift operating margins to 12 percent in the medium-term on only 10 percent growth in sales per square foot.

Management's roadmap implies a potential for $10 per share in earnings power, which Basham said represents an 80 percent increase off a re-based $5.50 EPS estimate in 2018. The $10 in EPS potential also marks notable upside to Wedbush's bull case model and can be attributed to a "deeply experienced" management team with the necessary expertise in bringing the right changes.

The bullish case for Lowe's stock can't yet be justified as the company's encouraging outlook comes at a time of a "less sanguine" macro environment, the analyst wrote in the note.

Price Action

Lowe's was trading higher by 2 percent Thursday afternoon to $93.91 per share.

Related Links:

Citi Is A Believer In Lowe's Turnaround Plan: 'We Think The Stock Has Upside From Here'

Credit Suisse Downgrades Home Depot, Lowe's On Reduced Upside Projections

Photo courtesy of Lowe's.