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No 'meaningful uptick' expected in home improvement retail, analyst says



Lowe’s Cos. faced a setback in its fourth-quarter earnings, revealing a 6.2 per cent drop in like-for-like sales. Analysts attribute this decline to the prevailing high mortgage rates, causing homeowners to reconsider their involvement in home construction projects.


Brian Nagel, an equity research analyst at Oppenheimer, characterized Lowe's recent earnings as "lacklustre" during a television interview on Tuesday with BNN Bloomberg. Nagel expressed his view that these results underscore the challenging landscape within the U.S. home improvement sector.


Despite the decline in sales, Lowe’s shares experienced a modest increase of less than one per cent during the market open on Tuesday in New York. Nagel offered his perspective, suggesting that the market might be focusing on a potential fundamental recovery for Lowe’s later in the year or by 2025.


However, Nagel cautioned against excessive optimism, drawing on past experiences and noting the market's tendency to quickly shift towards a more pessimistic outlook, adjusting stock prices to reflect near-term fundamentals.


According to Nagel, existing housing data does not provide any indications of a "meaningful uptick" in the home improvement retail sector in the near future. He acknowledged the hopeful expectation that the U.S. Federal Reserve might initiate rate cuts, leading to a better housing market, but he emphasized that such changes would not occur immediately.


"I think we've got some time before we start seeing really substantial rate decreases," Nagel commented. He shed light on the fact that a significant portion of Lowe’s business revolves around the maintenance and enhancement of existing homes, constituting the core of their operations.


Nagel's assessment echoes the broader economic sentiment, emphasizing the significance of external factors such as mortgage rates and Federal Reserve policies in influencing consumer behavior and, consequently, the performance of home improvement retailers like Lowe’s.


The analyst's cautious outlook suggests that the challenges faced by Lowe's may persist in the short term, with a potential recovery contingent on external factors aligning favorably. As homeowners navigate the uncertainties of the current mortgage rate environment, the home improvement retail sector faces an uphill battle in stimulating demand for construction and renovation projects.


In conclusion, Lowe's recent earnings report and the analysis provided by Brian Nagel reflect the intricate interplay between economic factors, market sentiments, and the prospects of the home improvement retail sector in the United States. While hopes for a fundamental recovery persist, the road ahead appears uncertain, with the timing of significant market improvements dependent on various economic variables.


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