Should Home Depot and Lowe's Expect a Correction?

Retail

Published: October 14, 2014 10:40 am

Shares of Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW) were both lower after being the targets of an analyst downgrade Tuesday morning before the market opened. SunTrust Robinson Humphrey downgraded Home Depot to Neutral from Buy with a price target of $95, down from $100. The firm simultaneously downgraded Lowe’s to Neutral from Buy with a price target of $55, down from $60.

The downgrade did not seem severe by any means, when you consider the state of the market, but the stocks were lower in the first hour of trading. Home Depot was down close to 1.3% and Lowe’s was down by about 2%.

What drove the downgrades was a near-term risk of correction in these stocks, considering expectations for earnings performance remain tepid. A recent 7% slide in the stock market didn’t exactly help matters either.

Over the past 90 days, Home Depot has increased more than 14% to Monday’s close of $90.60 from the July 11 close of $79.21. Lowe’s increased 11% to its previous close of $52.47 from its July 11 close of $47.21. This analyst downgrade almost feels as though it could be a self-fulfilling prophecy in terms of the correction that it predicted for these home improvement giants.

Home Depot was trading at $88.86 in the opening hour Tuesday. Its stock has a consensus analyst price target of $95.92 and a 52-week range of $73.74 to $94.79. The market cap is $121 billion. Lowe’s was trading at $51.59. Its shares have a consensus analyst price target of $55.35 and a 52-week range of $44.13 to $54.81. The market cap is $51 billion.

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