NEW YORK Shares of home improvement retailer Lowe's Companies Inc (LOW.N) could rise by 20 percent or more, helped by better projected earnings growth this year and greater room for margin improvement, Barron's said on Sunday.
Companies such as Lowe's and Home Depot Inc (HD.N) are uniquely positioned due to their strong outlook, as a healthy economy and improving real estate markets in most of the United States encourages homeowners to undertake renovation, Barron's said.
These companies are also "Amazon proof", the report said, noting that home improvement was low on the list of categories the retailer is expected to penetrate.
U.S. retail heavyweights including Target Corp (TGT.N), Wal-Mart Stores Inc (WMT.N) and Kroger Co (KR.N) have been locked in a fierce battle against Amazon Inc (AMZN.O).
While both Home Depot and Lowe's are poised for growth, Lowe's could be more attractive now, due in part to its lower price-to-earnings ratio, the report said.
Lowe's shares trade at $82, or about 18 times projected earnings of $4.63 per share for year ending January 2018, while Home Depot trades at $147, or 20.4 times estimated earnings of $7.19 per share in its current year, Barron's said.
Lowe's same-store sales performance has lagged Home Depot's the past several quarters, mainly due to its focus on do-it-yourself customers who spend less on big-ticket items than professionals.
However, the retailer is taking steps to boost per-store revenue, which would help narrow the valuation gap, Barron's said.
Lowe's offers investors exposure to one of retail's strongest sectors, the potential for 15 percent annual earnings growth and a "shareholder friendly" management, according to the report.
(Reporting by Devika Krishna Kumar in New York; Editing by Meredith Mazzilli)