Housing market is cracking and it will hammer Lowe’s, analyst warns

Lowe’s shares are nailed with a downgrade by Citi analysts on fears a rapid cooling in the housing market could dent demand at the home improvement retailer.

Citi analyst Steven Zaccone cut his rating on Lowe’s to neutral on Thursday.

“We see risk of a 2Q miss on same-store sales and EPS versus Street with the potential to lower FY22 guidance given weak first-half results,” Zaccone wrote in a statement. new note to customers. “We believe the buy side is bracing for a misfire and a guide down, but we see less likelihood of a relief rally on the downside forecast given the negative overhang from a slowing housing market. “

Shares of Lowe’s fell slightly in premarket trading.

Zaccone, however, maintained a buy rating on Lowe’s rival Home Depot, believing that sales to contractors (known as pros at Home Depot) will remain strong in the near term. Lowe’s has a much smaller presence in the contractor sector than Home Depot.

“Our primary downgrade thesis to Neutral (target price $205) is based on a more challenging macro backdrop, a slowing DIY consumer, increasing promotional risk and a more difficult path to margin expansion in a selling environment. lower,” the analyst wrote.

Lowe’s stock downgrade could be the first of many by analysts amid the current housing downturn and stock prices that have strangely remained afloat. Shares of Home Depot and Lowe’s have risen 10% and 8% respectively over the past month amid a border market rally.

Amid rising interest rates and rising homeownership costs, sales of existing homes in June fell 5.4% from May, according to the latest data from the National Association. of Realtors (NAR). Sales in June were down 14.2% from a year ago.

A sign is displayed in front of a new housing development in Burke, Virginia on April 26, 2022. (Photo by Stefani Reynolds/AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images)

Sales of new homes fell to their lowest level in two years in June.

“We are going through a painful and volatile time,” Redfin CEO Glenn Kelman said on Yahoo Finance Live this week (video above). Kelman’s cautious tone on housing on Yahoo Finance Live echoes that of Whirlpool’s chief financial officer, Jim Peters, a few weeks earlier.

Additionally, a key driver of sales at Lowe’s and Home Depot — home remodelers — is also slipping. The National Association of Home Builders’ Renovation Market Index fell 10 percentage points year-over-year in the second quarter.

“While most remodelers across the country are still positive about the market,” said NAHB Remodelers President Kurt Clason, “a growing number are starting to feel the symptoms of a downturn.”

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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