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Bear of the Day

We downgraded our recommendation on Lowe's Companies (LOW) to Underperform following dismal second-quarter 2012 results. The quarterly earnings of $0.65 per share missed the Zacks Consensus Estimate of $0.70, and fell 4.4% year-over-year. Net sales slid 2% to $14,249 million, and fell short of the Zacks Consensus Estimate of $14,421 million.

Consequently, Lowe's trimmed its outlook, as it remains concerned about the housing market and the sluggish economic recovery. Management now expects fiscal 2012 earnings to be $1.64, down from a range of $1.73 to $1.83 per share forecasted earlier. Management now projects total sales for fiscal 2012 to remain flat with fiscal 2011, and expects comparable-store sales growth of 0.5%.

We believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds. Our target price of $28.00, 17.0X 2012 EPS, reflects this view.

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