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Jefferies upgrades Lowe's to 'buy'

Jefferies LLC on Feb. 5 upgraded Lowe's Cos. Inc.'s stock to "buy" from "hold" and declared the home improvement retailer as its franchise pick for 2018, saying it is optimistic new board members and the presence of shareholder activism in the company would give rise to good strategic decisions, improved execution and stronger sales and profitability.

Jefferies also increased the price target to $129 from $101.50 and raised its Lowe's fourth-quarter EPS estimate to 90 cents from 88 cents.

"Our renewed optimism for LOW directly reflects shareholder activism in the space, a frictionless process to appoint and nominate new board members and genuine potential for better execution to translate into improved sales productivity, higher operating margin, stronger cash flow, greater share buybacks and a higher ROI," the analysts said in a Feb. 5 investor note. "We see the latest events as an agent for change that will either result in this management team meeting the challenge with stepped-up performance, or potentially turnover in the senior ranks."

Jefferies expects an increase in the company's sales in the range of $10 billion to $11 billion from consumer tax savings. Its analysis also suggests Lowe's can double its EBIT and triple its EPS within five years.