Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW) have each reached 52-week highs in the months since the hack on Home Depot. Oppenheimer’s Brian Nagel has weighed in on this and sees it as a favorable trend that should continue.

Oppenheimer has a positive outlook for each of these companies. Home Depot’s price target was increased to $115 from $101, which suggests an upside potential of 15% from current levels. Oppenheimer also increased Lowe’s price target to $70 from $60, which implies an upside of 20% from current levels.

The firm raised its fiscal year 2016 earnings per share (EPS) forecasts, which are conservative expectations of recovery. These forecasts imply underlying drivers of stable margins and stringent cost controls. Oppenheimer has a fiscal year 2016 EPS forecast for Home Depot of $6.05, compared to a street estimate of $5.92. The firm also has a fiscal year 2016 EPS forecast for Lowe’s of $3.70, compared to a street estimate of $3.62.

Oppenheimer closely studied the performance of Home Depot and Lowe’s compared to shifts in the Fed funds rate. This work suggests that, contrary to conventional market wisdom, the shares of both companies tend to perform well and even outperform the S&P 500 through the early to mid-stages of Fed tightening cycles. Home Depot and Lowe’s only languish as hikes to the Fed funds rate taper and investors focus on the potential for economic weakness.

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Brian Nagel said in his report:

We have for some time looked favorably upon the structural prowess of home improvement retail and HD and LOW. Earlier we identified HD and LOW as “bright spots” within an otherwise lackluster hardlines sector. Shares continue to charge ahead, and are again approaching the new higher targets we only recently established. Thus far in 2014 HD and LOW are up 18% and 17% vs. gains of 10% in the S&P 500 and 8% in our Opco hardlines coverage (ex HD and LOW). We continue to recommend HD and LOW. The consumer backdrop in the US is improving further, while signals of renewed recovery in housing are emerging. Fears of higher rates derailing HD and LOW appear overblown. Aggressive buybacks ensure capital disciplines and support EPS expansion. Premium valuations should persist so long as company and sector fundamentals hold and investors seek attractive US-centric plays.

Shares of Lowe’s were trading up about 0.5% about $57.95 in the first two hours of trading Monday. The consensus analyst price target is $55.35, and the 52-week trading range of $44.13 to $58.04.

Home Depot shares were recently trading even with Friday’s close at $97.65. The stock has a consensus analyst price target of $96.42 and has traded in a 52-week range of $73.96 to $99.26.

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