Low mortgage rates and increased home improvement spending are going to help lift Lowe's stock, according to Piper Jaffray. The firm upgraded the stock to overweight from neutral and hiked its price target to $130 from $113, as it expects home improvement spending to see its largest growth since 2016 in the coming quarters as more and more people use low rates to refinance their homes. "Home equity extraction growth has strong correlation with home improvement retail sales wallet share, and can drive big ticket growth for LOW," said Piper Jaffray senior research analyst Peter Keith in a note to clients on Tuesday. Despite being volatile, shares of Lowe's are up nearly 20% this year. Piper Jaffray expects the stock to get an even bigger boost thanks to the current low rate environment. The 30-year mortgage rate is back to a 3-year low of 3.6%, compared to about 4.75% in the end of 2018. Home improvement names perform well when yields drop, because mortgage rates also go down and people will refinance their mortgages. The extra monthly savings from mortgage payments often go to home improvement projects, which boosts foot traffic at places like Lowe's. Keith said homeowners extra cash from refinancing is poised to accelerate. He expects growth of 20% in the second-half of 2019 and 10% in the first half of 2020. "We see a path for accelerating comp growth and gross margin upside in 2020 -- leading to EPS growth of 20%," said Keith. Keith also said Lowe's trades at a "substantial discount" to its home improvement stocks, like Home Depot . Shares of Lowe's popped 1.6% on Tuesday. —with reporting from CNBC's Michael Bloom.
An employee organizes buckets for sale inside a Lowe's Cos. store in Burbank, California.
Patrick T. Fallon | Bloomberg | Getty Images
Low mortgage rates and increased home improvement spending a