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Remodeling cycle to lift Home Depot, Lowe’s

Homeowners plan to do more remodeling and spend more per project this year after delaying improvements, and that is good news for the top two U.S. home-improvement retailers Home Depot Inc. and Lowe’s Cos., an analyst said Monday.

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Two-fifths of homeowners plan to spend more on their homes than they did last year, compared with 33% of them who plan to spend about the same and 27% of them who said they’d spend less, according to an online survey by Piper Jaffray analyst Peter Keith, who queried 440 homeowners regarding their home remodeling goals.

In another encouraging sign, 48% of the respondents said they planned to complete a discretionary project of greater than $500 this year. Three-quarters of them also indicated they have the cash savings to pay for a large ticket project. “We now expect home-improvement industry growth to outpace GDP growth for the foreseeable future,” Keith said.

Like many retailers, Home Depot says its expanding in the online channel aggressively and targeting it as a major growth opportunity, as housing worries continue to affect the world’s largest home-improvement retailer.

The analyst upgraded his ratings on both Home Depot HD -0.19% and Lowe’s LOW -0.06% to overweight on Monday, sending both stocks up about 1% to $51.58 and $32.01 respectively, as the rest of the retail sector declined. He has a $62 price target on Home Depot and $41 on Lowe’s.

Mixed signals continue to come out of the housing sector. The Commerce Department said Monday that March retail sales of building materials and garden equipment rose 3% from February, the biggest increase in almost a year and a half. At the same time, the National Association of Home Builders/Wells Fargo housing-market survey showed home-builder sentiment dropped in April for the first time in seven months.

Delayed gratification

The Piper Jaffray survey showed both retailers were the most popular choices among places where homeowners said they’d like to spend their home-improvement dollars.

The median value of total spending expected on large projects this year rose 14% to $2,000, while the average spending per project expected this year shot up to $2,000 from $880, the 30-question survey showed.

Among the two most popular reasons behind the increase, 36% of homeowners said they had delayed updating or repairing their homes for long enough, while another 31% of them cited an improvement in their income situation or more cash savings. The survey found that declining home prices were not a major hindrance in remodeling intentions.

[via MarketWatch]

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