Better-than-expected earnings and revenue at Lowe’s on Wednesday could be a turning point for the home improvement company that has lived for years in the shadow of its rival Home Depot, according to Oppenheimer & Co. retail analyst Brian Nagel.
On CNBC’s “Squawk Box” on Wednesday, moments after the strong second-quarter results, Nagel said he sees “big turnaround potential” for a company and a stock, which have “lagged for years.”
Shares of Lowe’s were soaring 12% in premarket trading.
In a “dream the dream scenario,” Nagel calculated that Lowe’s stock could see $180 per share. That would represent an almost 84% increase from where it closed Tuesday at about $98 per share.
“If I model this out, there’s more than $10 in earnings-per-share at Lowe’s. You put an 18 [times] multiple on that,” Nagel explained. However, he said his official price target for Lowe’s is $135 per share.
Nagel credited retail veteran Marvin Ellison, who left J.C. Penney 13 months ago to become Lowe’s CEO, for the encouraging numbers. Ellison also spent decades in executive roles at Home Depot and Target.
“It seems under the guidance of the new CEO, Lowe’s is getting its act together — and frankly, if we’re right here and this continues, this stock has a long way to run,” Nagel said.
However, he said investors don’t have to choose between shares of Lowe’s and Home Depot.
“Home Depot [is] a very quality company; under valued stock even with yesterday’s bounce. Lowe’s [is a] turnaround opportunity,” he said. “Two different types of investment vehicles, but I don’t think you’d be hurt owning them both here.”
On Tuesday, Home Depot shares surged 4.4% after the company beat estimates with second-quarter earnings.
However, revenue did fall short of expectations, and the company also lowered its sales outlook for the year on concerns about the U.S.-China trade war slowing consumer spending.