FBR on Lowes (NYSE:LOW), Home Depot (NYSE:HD)

FBR Capital came away from an analyst day with Lowes (NYSE:LOW) positive on their outlook in the short term, based on Black Friday and their new prototype store size, but aren't convinced on their pricing strategy, and how it's being implemented.

FBR said, "We tweak our estimates and adjust our price target up slightly on Outperform-rated Lowe's (LOW), on the heels of its analyst day yesterday in Mooresville, North Carolina. Capital allocation and the reduction by the company of its new-store prototype size, from 117,000 square feet to 103,000, were clear positives. Additionally, in the shorter term, the tone surrounding this past Black Friday and the related weekend's sales trends was positive, in our view. The clear offsets are housing and the related deceleration in home values, as measured by Case-Shiller (see herein); 84% of planned home improvement projects also relate to smaller-ticket (sub-$500) - so larger-ticket spending by the consumer remains a pressure. Finally, relating to LOW versus HD, we are not sold on the company's "price optimization" strategy, as this seems somewhat hypocritical: "Price is the most important constant," yet, in certain cases and "patch areas" (pricing zones), the company is "surgically" raising prices....

"For LOW we adjust our 2010E EPS estimate to $1.38 from $1.36, and this compares with the Street consensus estimate of $1.41 and guidance of $1.37 to $1.40. For 2011E, we adjust our estimate to $1.57 from $1.53, and this compares with the Street consensus estimate of $1.64. For HD, we adjust our 2010E EPS estimate to $1.91 from $1.95, and this compares with the Street consensus estimate of $1.95 and guidance of $1.94. For 2011E, we adjust our estimate to $2.10 from $2.15, and this compares with the Street consensus estimate of $2.21.

"Lowe's (Outperform); Home Depot (NYSE:HD) (Market Perform). We adjust our price target for LOW to $24 from $23, and this reflects a 14.1x multiple on our 2012E EPS estimate of $1.71, a 7% premium to the current NTM S&P 500 multiple of 13.1x. For HD, we maintain our price target of $33, which reflects a 14.4x multiple on our 2012E EPS estimate of $2.30, a 10% premium to the current NTM S&P 500 multiple of 13.1x."

Lowes was trading at $23.51, gaining $0.81, or 3.57 percent at 1:32 PM EST. Home Depot was also up, trading at $31.56, rising by $1.35, or 4.47 percent.