Wells Fargo Bullish On Home Depot, Lowe's Stocks

Wells Fargo initiated "outperform" ratings on HD, LOW

Managing Editor
Apr 24, 2018 at 9:59 AM
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Home improvement stocks Home Depot Inc (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) are both trading higher this morning, after Wells Fargo initiated coverage with an "outperform" rating, and set its price targets on the retail stocks to $205 and $100, respectively. The brokerage firm believes broad macroeconomic factors will be a boon for both HD and LOW, and said the former is at an attractive entry point and the latter is poised to gain market shares. 

Short Sellers Have Abandoned Home Depot Stock

At last check, Home Depot stock was up 0.9% to trade at $179.33. The $205 price target sits in territory the equity has not seen since its Jan. 29 record high of $207.61. Although the shares recently turned in their worst quarter in years, the pullback appears to have been contained by their 200-day moving average. Overall, HD has added 18% in the past 12-months.

Plenty of HD short sellers are abandoning ship. The 8.85 million shares sold short is down by half since mid-September, and short interest fell by 20% in the most recent reporting period. A continuation of this short-covering activity should provide more tailwinds for the equity.

Options Traders Grow Bearish as Lowe's Stock Churns

Lowe's stock is up 0.7% to trade at $84.50. Similar to Home Depot, LOW stock shot to a record high of $108.98 on Jan. 25, and then promptly reversed course amid the stock market correction. Since a late-February bear gap, the equity has traded within a tight range just above the $84-$85 area, which coincides with the stock's 200-day trendline and its year-over-year breakeven mark.

In the options pits, put buying has picked up in recent weeks. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows LOW with a 10-day put/call volume ratio of 0.96, a ratio that ranks in the 93rd percentile of its annual range.

Meanwhile, those who have bought premium on LOW stock have been consistently rewarded over the last 12 months. The stock's Schaeffer's Volatility Scorecard (SVS) of 86 (out of 100) indicates Lowe's shares have easily exceeded options traders' volatility expectations in the past year.

 


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