Shares of Lowe's(NYSE: LOW) have been on quite a run lately. The company's stock price has jumped more than 10% in just the last month. Yet one Wall Street analyst thinks it needs to go up by another 12.5% over the next year or so to be fairly priced.
After the home improvement retailer reported its fourth-quarter earnings this week, D.A. Davidson analyst Michael Baker said his firm thinks Lowe's stock will reach $270 per share.
Housing sector recovery ahead
It wasn't a blowout earnings report that has Baker thinking Lowe's stock has more room to run. Quarterly sales slipped 17% year over year in its fiscal fourth quarter ended Feb. 2. But management expressed optimism around the longer-term durability of the home improvement market.
The company sees 2024 revenue still coming in slightly lower than 2023. But the prospects for the home improvement market could be brighter in 2025 and beyond. Most investors feel interest rates have peaked, and the next direction for them will be lower. That should boost the home building sector as well as do-it-yourself (DIY) home projects.
Baker wasn't disappointed by the 2024 guidance. In his note to clients shared by Barron's, he wrote:
"We would rather see [Lowe's] guide to something [makeable] than to set a high bar and need to guide down. Thus, although business trends may still be soft, we believe the stock should hold in well on a print that was no worse than expected."
A drop in interest rates should start a cycle of increased spending on housing from both professionals and DIY customers. Lowe's may not show much improvement in 2024, but buying it now could make for a winning investment beyond this year.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
