Lowe’s to rocket 20% with ‘radically more positive’ outlook after tax cuts: Bernstein

Lowe’s to rocket 20% with ‘radically more positive’ outlook after tax cuts: Bernstein

Patrick T. Fallon | Bloomberg | Getty Images

An employee prepares a paint order for a customer inside a Lowe’s Cos. store in Burbank, California.

Lowe’s stock is set to pop 20 percent in the next year as America’s obsession with homes swells under Republican tax cuts, according to one Wall Street bank.

Shares of the home improvement company rose 0.9 percent after Bernstein upgraded the stock to outperform from underperform, set to add to a 42 percent climb over the past six months.

An improving U.S. economy should help boost sales at Lowe’s, which also has gotten the attention of an activist shareholder who is pushing for ways to improve results. With the activist on board “we become radically more positive on the outlook,” analyst Brandon Fletcher wrote to clients Monday. “With unemployment low, wages on the rise, and tax reform providing a further potential boost, we now expect increased consumer spend for at least the next year.”

Lowe’s outperformed the market in late 2017 as hurricanes Harvey and Irma propelled spending on home repairs, while Republican efforts around tax reform likely drove a larger leg up. Low unemployment and an expected uptick in wages are likely to prove beneficial to Lowe’s, while survey results hint that consumers look more willing to spend extra cash on home improvement, Fletcher said.

The analyst hiked his 12-month price target on the company to $125 from $69. The new target is 19 percent above Friday’s closing price.

Though historically lagging larger rival Home Depot, the company has tried to develop its professional and contracting business. Global investment firm D.E. Shaw & Co. recently built an active stake in Lowe’s in the hopes that, through pressure and managerial tweaks, the company can become more competitive.

“We think the activist addition to the board and some Lowe’s management moves in the chief operating officer chair mean the bear story had ended,” added Fletcher.

CNBC’s Michael Bloom contributed to this report.

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