March 02, 2012 at 14:46 PM EST
Lowe’s is On the Comeback Trail, Says Morgan Stanley
Lowe’s (LOW) may not be a Buy just yet, but the home improvement company has less downside risk and improving fundamentals, Morgan Stanley analyst David Gober wrote in a note upgrading the shares to Equal Weight from Underweight. Gober now expects higher revenue growth and operating margin expansion, which could propel results when combined with [...]

Lowe’s (LOW) may not be a Buy just yet, but the home improvement company has less downside risk and improving fundamentals, Morgan Stanley analyst David Gober wrote in a note upgrading the shares to Equal Weight from Underweight.

Gober now expects higher revenue growth and operating margin expansion, which could propel results when combined with the company’s relatively aggressive buyback program.

“While we believe that a lull in recent optimism over housing could drive shares lower, increased conviction in a modest recovery in LOW’s revenue trends and early success in reshaping the balance sheet make us more constructive,” Gober wrote.

That said, the company’s price to earnings multiple still don’t make it a bargain.

“LOW’s P/E multiple has expanded roughly 3x to about 16x 2012 P/E over the past few months. This is a 5% premium to its 5-year historic relative multiple and thus we see further near-term multiple expansion as unlikely. We would look for a pullback in valuation or greater conviction in housing and home improvement trends.”

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