Lowe’s (LOW) conservative guidance for FY26 was largely to blame for the steep sell-off in the stock on Wednesday, spilling over into home-building stocks after the company raised alarms over the stagnant housing market.
In an interview with CNBC, CEO Marvin Ellison warned that the company is “still dealing with a housing market that does not have a lot of tailwind.”
“For us, the greatest fuel for the home improvement industry is when you decide to put your house on the market…because the first thing you do is you fix up your yard, you repair your fence, you paint your walls,” Ellison added.
Industry data shows that there remains a meaningful gap between home buyers and home sellers, with the former viewing homes as too expensive and mortgage rates still too high, while the latter cannot obtain contracts as quickly as in the past.
But despite the lingering mismatch, analysts are not ready to throw in the towel on Lowe’s (LOW) and remain bullish on the company’s future, citing strong comparable sales and the potential for a housing rebound to position the stock for outperformance.
“We like the LOW investment case as it provides upside optionality when the housing market rebounds, and downside appears limited given the industry is bottoming,” says Morgan Stanley’s Simeon Gutman, adding that similar to Home Depot’s (HD) results, the flat to +2% comparable sales guidance “reflects an industry that is bottoming.”
Notably, the professional segment remains robust and will continue to offset any struggles the DIY segment continues to experience, a dynamic that will support Lowe’s (LOW) bottom-line as the former continues to gain traction and narrows the gap with Home Depot, says BofA Securities’ Robert Ohmes.
“We like the setup in Lowe’s,” says Jefferies analyst Jonathan Matuszewski. “With support from tax refunds, improved turnover, and rising HELOC activity potentially driving more project starts, [we have increased] confidence in valuation multiple expansion ahead.”
“While DIY discretionary demand is still soft, downside is limited given the end of reversion, declining mortgage rates, and budding momentum in Pro,” Gutman adds, reiterating his Overweight on Lowe’s (LOW) with a $296 price target, reflecting 12% upside to Wednesday’s closing price.
BofA Securities and Jefferies are also bullish on Lowe’s (LOW) viewing the stock as a Buy with price targets set at a premium to the current price.