Charlotte, NC, Apr. 7--Raymond James & Associates boosted its rating on Lowe's Cos. Inc. and increased first-quarter earnings guidance for both Lowe's and larger rival Home Depot Inc., citing signs that some of the retailers' major suppliers are doing well.
In research notes Wednesday, analyst Budd Bugatch said positive earnings preannouncements recently by Masco Corp., Fortune Brands Inc., Stanley Works and Black & Decker Corp. were based in part on improving sales. Given those indications, he increased his estimates for comparable-store sales and profits at Lowe's and Home Depot during the first quarter.
Bugatch boosted his investment rating on Lowe's to strong buy from market perform and reiterated a rating of strong buy on Home Depot.
Bugatch expects Lowe's comparable-store sales in the first quarter to increase 7.5%, up from his earlier forecast of 6.8%, and he boosted his per-share earnings estimate for the period by one cent to 55 cents, including a charge of 13 cents a share for an accounting change. Lowe's has said it expects earnings of 52 cents to 54 cents a share, including the accounting change impact, on a 6% to 7% increase in same-store sales.
Analysts surveyed by Thomson First Call generated a mean estimate of 54 cents a share, compared with 53 cents a year earlier.
Bugatch also boosted his same-store sales estimate for Home Depot's first quarter, to 6.5% from 5%, and raised his earnings estimate by 2 cents to 42 cents a share. That's still below First Call's mean estimate of 43 cents a share. A year earlier, Home Depot earned 39 cents a share.
Home Depot hasn't provided a forecast for the first quarter.
Bugatch set a 12-month price target of $69 on Lowe's and increased his Home Depot price target by $1 to $47. The analyst doesn't own shares of either company, but Raymond James intends to seek or receive investment-banking fees from the companies.
