Deutsche Bank raises target price at Home Depot and Lowe’s
Deutsche Bank raised its price target on home improvement retailers Home Depot and Lowe’s, saying that many of the leading indicators that it tracked in the sector had begun to look better.
The brokerage said this confirmed its view that trends had likely bottomed.
Deutsche Bank, which raised its price target on Home Depot’s stock to $27 from $24, said gross margin trends should be favorable, particularly for Home Depot, due to rational pricing and lower input costs.
It raised the price target on Lowe’s stock by $3 to $26.
Weather in the quarter may have had a negative impact, but same-store sales should be at least in line with its forecasts, Deutsche said.
Shares of Home Depot closed at $26.32, while Lowe’s closed at $22.74 Monday on the NYSE.
Did sales heat up in July?
July sales results due out later this week from Target are likely to be somewhat anticlimactic. The company already told analysts last month that it would meet or exceed earnings estimates that were in place at the time, and second-quarter results for the period ended July 31 are scheduled for release in two weeks on August 18. Nevertheless, the July figures should provide valuable insight on a number of levels. For starters, there is the issue of the effectiveness of Target’s strategy to generate customer traffic through an ongoing, but recently heightened, promotional emphasis on food and consumables that is designed to allay shoppers concerns regarding Target’s prices.
Last month, Target’s same-store sales declined 6.2%, as fewer people shopped its stores and those who did spent less, so trends regarding customers traffic and average transaction size will be watched closely. Also instructive will be comments regarding the early pace of sales for the back-to-school season and expectations of seasonal sales during the remainder of August. Of course, the most closely watched metric will be same-store sales, which are expected to be negative, but a low-single-digit decline would be seen as a victory of sorts since earlier guidance and analysts’ expectations call for a mid-single-digit drop. Either way, the numbers will require some explaining on the part of executives because they will be compared to a prior-year period when consumers benefitted from economic stimulus checks, but at the same time were paying nearly $4 a gallon prices for gas. Then there is the issue of the credit card business and insight Target executives offer regarding repayment trends and whether consumers are paying their bills on time.
Tapping former Target talent
Pier 1 Imports has secured the merchandising services of former Target executive Catherine David, who joined the Fort Worth-based retailer as EVP merchandising. David Spent 13 years at Target, and when she left the company was VP and general manager of Target Direct. However, she’s held several jobs in the interim, including most recently serving as president and COO for Kirkland’s and prior to that held VP and general manager positions with Sears Essentials, Sears Grand and The Great Indoors. She also serve as president of the Burnes Group, a photo frame and accessories supplier.