Lowe's should benefit from anticipated lower interest rates in 2024, J.P. Morgan said Monday. Lowe's stock broke out, while rival Home Depot made a new high and homebuilder stocks staged a broad rally.
Expected rate cuts from the Federal Reserve later this year will lower mortgage rates — and provide a boost to the home improvement retailer, the bank's analysts said.
The firm raised its rating on Lowe's stock to overweight from neutral. It hiked the LOW price target to $265 from $210, while adding the retail stock to its Analyst Focus List as a value play. As for Home Depot stock, the bank's analysts continue to rate it as overweight.
On top of the bank's upgrade, data shows that mortgage demand rose last week despite a slight increase in mortgage rates.
Rising mortgage refinance demand is directly connected to an uptick in home remodeling projects.
For the week ending Feb. 2, total mortgage demand grew 3.7% vs. the prior week, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. A Jan. 26 report from the National Association of Realtors projected a 13% year-over-year increase this year in existing-home sales, and a 15.8% increase in 2025.
Sale and remodeling of existing homes is a fundamental sales generator for Lowe's.
Lowe's Stock, Home Depot, Homebuilders Rally
Shares of Lowe's popped 3.5% to 229.92 in above-average volume on the stock market today. Lowe's stock topped a 227 buy point from a cup-with-handle base, according to MarketSmith pattern recognition.
Home Depot stock also rose Monday, bouncing off support at the 10-week line. Shares of the Dow Jones retail giant struck a fresh 52-week high.
Homebuilder stocks also rallied, including Lennar, Toll Brothers and KB Home. All three are near buy points, also poised to gain from likely rate cuts and higher mortgage demand.
With wage growth improving and interest rates set to come down in 2024, consumers will have more money to spend on do-it-yourself projects, J.P. Morgan said in the Monday note.
"Specific to the home improvement category, we estimate that we are less than 5% from pre-Covid wallet share," analyst Christopher Horvers said in the research note to clients.
Lowe's and Home Depot are due to report earnings later this month. The 50-day moving average for Lowe's stock is rising and recently crossed above the 200-day line, a positive sign.
