Lowe’s (LOW) CEO expects home renovations to ramp up in lieu of homeowners taking on new homes because of still-high mortgage rates. Wall Street liked the message.
In trading this afternoon, the home improvement chain’s stock was up nearly 6%.
Americans have “significant equity” of an “average of $400,000 in equity per home,” Lowe’s CEO Marvin Ellison told Yahoo Finance — a good formula for renovations.
“We expect homeowners to start, at some point, to tap into these … home equity lines of credit (HELOC) to start to finance larger, more discretionary home improvement projects, because they’re going to be reluctant to give up those sub-4%, sub-3%, 30-year fixed mortgage rates,” he said.
Per Freddie Mac last week, the average 30-year fixed-rate mortgage rate is up two basis points to 6.24%
Homeowners, Ellison said, have low mortgage rates but “hate their kitchen … need an extra garage … an extra bathroom, they need a modernized environment.”
Plus, the average age of a home in the US is getting higher, now roughly 44 years old.
Read more about Lowe’s stock moves and today’s market action.
Ellison believes Lowe’s is well prepared to pick up incoming demand. In the third quarter, the company posted better-than-expected results on both the top and bottom line and raised its full-year sales outlook.
Yet, the company posted only a small increase in same-store sales, up 0.4%, slightly lower than the 1.02% increase the street forecast, per Bloomberg consensus data. Wall Street is still optimistic about the results despite Home Depot (HD) painting a bleak picture of the current industry. (Same-store sales rose 0.1% in the US.)
“While underlying demand in the business remained relatively stable sequentially, an expected increase in demand in the third quarter did not materialize,” Home Depot CEO Ted Decker said in a release.
Ellison said Lowe’s has produced double-digit growth for its home installation business, like kitchens, bathrooms, HVAC systems, water heaters, windows, and doors.
“This is a big-ticket business, and it’s doing well for us, but it’s doing well not because the market is dramatically recovering. It’s doing well because we’re taking share,” Ellison said, adding, “We have created a go-to-market strategy that’s better than our competition.”
Bank of America analyst Robert Ohmes wrote in a note to clients that the bank believes Lowe’s profitability will improve and that its margin gap with Home Depot will “continue to narrow as it gains traction with Pros.”
Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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