The housing market is cracking and that will hammer Lowe’s, analyst warns

Lowe’s stock is getting nailed with a downgrade by analysts at Citi on fears that a rapid cooling in the housing market will hammer demand at the home improvement retailer.

Citi analyst Steven Zaccone slashed his rating on Lowe’s to neutral from buy on Thursday.

“We see risk of a 2Q miss on same-store sales and EPS vs. Street with the potential to cut FY22 guidance given the weak first half results,” Zaccone wrote in a new note to clients. “We believe the buy-side is bracing for a miss and guide-down, but we see less likelihood of a relief rally on cut guidance given the negative overhang of a slowing housing market.”

Shares of Lowe’s fell slightly in pre-market trading.

Zaccone maintained a buy rating on Lowe’s rival Home Depot, however, on the view that sales to contractors (known as pros at Home Depot) will remain strong in the near-term. Lowe’s has far less of a presence in the contractor business compared to Home Depot.

“Our core thesis to downgrade to Neutral ($205 target price) is based on a tougher macro backdrop, slowing do-it-your-self consumer, rising promotional risk, and a tougher margin expansion path in a weaker sales environment,” the analyst wrote.

The downgrade on Lowe’s shares could be the first of many by analysts amid the ongoing housing slowdown and stock prices that have bizarrely stayed afloat. Shares of Home Depot and Lowe’s have tacked on 10% and 8%, respectively, in the last month amid a boarder market rally.

Amid rising interest rates and elevated…