Lowe’s stock does not have a meaningful upside from here: Citi

on Aug 12, 2022
  • Citi analyst Steven Zaccone downgraded Lowe's stock to "neutral".
  • Lowe's Companies is scheduled to report its Q2 results next week.
  • Shares of the home improvement retailer are down 25% for the year.

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Shares of Lowe’s Companies Inc (NYSE: LOW) have bounced roughly 17% off their low in mid-June, which, a Citi analyst says, is as far as they go.

Lowe’s stock downgraded to ‘neutral’

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On Thursday, Steven Zaccone downgraded Lowe’s stock to “neutral” and lowered his price target to $205 that does not represent a meaningful upside from here. The macro headwinds he quoted in a note to clients include:

Wallet share shift to services and travel, inflation tightening consumer budgets for big-ticket, higher rates, home prices starting to decline, and recession risk negatively affecting the employment picture.

The recent rally, as per the analyst, further turned the risk/reward less favourable. The macro pressures, including rising promotional risks will make it challenging for Lowe’s to expand its margins, he noted.

In June, retail sales were up 8.4% YoY. The next retail news is scheduled in the coming week, ahead of which, Lowe’s is down 25% for the year.

Lowe’s to report Q2 results next week

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Zaccone warns the home improvement retailer will come in shy of the Street estimates, particularly on earnings per share and same-store sales as it reports its fiscal Q2 results on August 17th. He added:

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We see the potential to cut FY22 guidance given the weak 1H results. We believe the buy-side is bracing for a miss and guide-down, but we see less likelihood of a relief rally on cut guidance given the negative overhang of a slowing housing market.

Consensus is for the NYSE-listed firm to earn $4.01 a share (up 6.9% YoY) on a 1.9% hit to comparable sales. Lowe’s stock currently trading at a PE multiple of 16.48.

To play the home improvement space, Zaccone recommends Home Depot Inc (NYSE: HD) on continued strength in its Pro business.


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