Evercore Adjusts TAP Lists

Evercore Adjusts TAP Lists

• Adds to TAP Outperform List: AutoZone (NYSE: AZO) and Home Depot (NYSE: HD)
• Adds to TAP Underperform List: Lowe's Cos. (NYSE: LOW).

AZO: "We are initiating an Outperform Tactical Trading call or TAP on AZO ahead of its F3Q earnings release on May 27th . We see upside vs. the Street on domestic comp (+2.7% vs. +2.4%) and EPS ($38.16 vs. $37.01) estimates with potential for stronger DIFM/program sales trends which have been much anticipated, which can drive a high single digit to low double digit increase in AZO stock with earnings as the key catalyst. AutoZone has focused on building mega hub stores to enhance in market availability, while broadening / deepening inventory to win commercial customer business. Our read of Bloomberg 2nd Measure data suggests that the investments have paid off, with improving trajectory for DIFM sales which helps to unlock the bull case. Tariffs remain a wildcard for AZO and peers, yet our recent Auto Forum event highlighted that while vendors may look to pass along higher input costs, retailers would likely want to preserve gross profit rate (not just dollars) and should therefore experience accelerating earnings growth prospects. AZO does not provide guidance, so the key will be understanding the quarterly comp cadence and early reads on how the ever critical F4Q is progressing (May-Aug). Our new $3,950 Base Case reflects 23x our C26 EPS."

HD: "We expect HD to reiterate their -2% EPS decline guidance in 2025, or ~$14.95, which compares to our slightly reduced $15 and the street’s $14.98. The 2025 comp guide of 1% remains reasonable in our view. It compares to our/street 1.3%/1.2% estimates. The stock is down 2% YTD and we believe reiterating the guidance and discussions on the call about the improving comps through the year (see below) should be enough to move the stock higher. For 1Q, we believe the buyside already expects a slightly negative comp, with corresponding peak yoy margin pressures until the SRS acquisition is cycled in June. As long as better trends into spring are confirmed, we believe the market reaction could prove similar to Walmart albeit with a bit more kick… a meet and keep with better trends is enough to move it back to $400+ levels last seen in January. We believe it is also fair to consider HD as a pair trade vs our negative TAP on LOW also out this morning. HD remains a benchmark retailer, investing in technology, multichannel and stores, even while current demand remains depressed. With hopes rising for an improving Home Improvement market in 2025, we think investors would be well served by having real exposure to the turn. SHW and HD remain in our Top Five and a preferred way to play it. HD may not have the margin levers that SHW possesses (manufacturing), they have similar compounder characteristics, and both have earnings and multiple upside as the market turns. Home Depot is pivoting the business towards the faster growing pro side (HD Supply, SRS), investing in technology, service, and opening stores to keep gaining share for whenever the housing recovery commences."

LOW: "Lowe’s reports 1Q on May 21st. We are initiating a negative TAP into the print. LOW guided to 2025 EPS of $12.28 at the mid-point (range of $12.15-12.40) and a flat to +1% comp. Based on estimated appliances share losses in 1Q, we reduced our comp estimate to -2.5% for LOW in fiscal 1Q, and reduced the comp estimate to flat for the year. LOW’s Artisan Design Group acquisition is likely to close during 2Q, with the $1.3bn cost reducing our buyback estimate for LOW to just $400m in 2025. Our EPS estimate for the year dropped to $12.10, below the low end of their posted range. We expect LOW to reduce their EPS guide for 2025 to bracket our $12.10, which is 12 cents below where the street currently is. While we believe the market does anticipate comps below peer HD, we think the 200bp magnitude, reduction of buyback, and lowering of guidance is not fully in the stock which has only underperformed HD by 300bp ytd. On the new numbers and concerns about forgone buyback support, we think the stock could slip back towards $220, or at least underperform peer HD (see positive TAP) through earnings this week."

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