Why Lowe's Stock Is Closing the Gap on Home Depot

Shares of home improvement retailer Lowe's Companies, Inc. (LOW) will likely rise 17% this year to $125, helping this company come closer to larger rival Home Depot Inc. (HD), as it benefits from tailwinds such as corporate tax reform and stronger consumer spending, according to CNBC. Further, an activist investor has started advocating for stronger results, a development that has caused Bernstein analysts to become "radically more positive" on the company's outlook. (For more, see also: Home Depot, Lowe's Seen Surging on Spending Boom.) 

Potential Recovery

Over the last year, shares of Lowe's have underperformed those of Home Depot, according to Google Finance. While Lowe's climbed 46% in the year through Jan. 24, Home Depot stock has risen 48.9%. However, this situation could potentially change. So far this year, Lowe's has outperformed Home Depot, with the former rising 14.8% and the latter climbing 8.8%.

Going forward, Lowe's could benefit from key tailwinds like a lower corporate tax rate and higher consumer spending that fuels stronger sales, CNBC reported. Bernstein analyst Brandon Fletcher spoke to these developments, stating that "With unemployment low, wages on the rise, and tax reform providing a further potential boost, we now expect increased consumer spending for at least the next year." 

Activist Investor

Fletcher also commented on the influence of D. E. Shaw & Co., an investment management firm that has recently established an active stake in Lowe's, CNBC reported. "We think the activist addition to the board and some Lowe's management moves in the chief operating officer chair mean the bear story has ended," he said. (For more, see also: Lowe's New COO Will Focus on Omnichannel Execution.)