On Thursday, Bernstein analysts provided insights into the U.S. Retailing Broadlines & Hardlines sector, offering a differentiated perspective on various companies within the market. Amidst a backdrop of consumer value-seeking, weak home improvement demand, growing ecommerce, high labor costs, increased shrink, and looming tariff risks, Bernstein identified opportunities to distinguish between potential winners and losers.
The firm highlighted Walmart (NYSE:WMT) as their top pick, assigning an ’Outperform’ rating with a $106 price target. Bernstein anticipates Walmart to capitalize on its scale, delivering value to consumers and achieving profitable ecommerce growth. They expect Walmart’s investments in omnichannel capabilities to result in earnings before interest and taxes (EBIT) growth that significantly outpaces sales growth.
Costco (NASDAQ:COST) also received an ’Outperform’ rating with a $1,058 price target from Bernstein. Despite its higher valuation, the firm is optimistic about Costco’s underappreciated international expansion potential, which could sustain consistent earnings growth for years.
Target (NYSE:TGT), however, was given a ’Market Perform’ rating with a $142 price target. While Target has been posting strong comparative sales with annual revenue of $107.6 billion and a healthy gross margin of 28.4%, Bernstein questions its long-term ability to exceed both sales and margin expectations. The company maintains an impressive track record of 54 consecutive years of dividend increases, currently offering a 3.3% yield. According to InvestingPro analysis, Target appears undervalued at its current trading price of $135.21, with 19 analysts recently revising their earnings estimates upward for the upcoming period.
In the dollar store segment, Dollar General (NYSE:DG) was marked as a ’controversial call’ but still rated ’Outperform’ with a $92 target price. Want deeper insights? InvestingPro subscribers get access to 8 additional ProTips for Target, plus comprehensive financial analysis and Fair Value calculations for over 1,400 stocks. Bernstein noted early signs of operational improvements and sees a significant opportunity for gross margin recovery. On the other hand, Dollar Tree (NASDAQ:DLTR) was assigned a ’Market Perform’ rating and a $79 price target due to strategic uncertainties surrounding its Family Dollar business.
For the home improvement sector, Bernstein prefers Lowe’s (NYSE:LOW) over Home Depot (NYSE:HD), citing Lowe’s as having ’low-hanging fruit’ opportunities to grow professional sales and expand EBIT margin. Lowe’s was rated ’Outperform’ with a $293 target price. Bernstein believes Lowe’s targets to close the performance gap with Home Depot are realistic and that its management team is capable of executing these plans. Home Depot received a ’Market Perform’ rating with a $421 target price, as the company faces challenges in targeting complex professional customers, which may dilute margins. For exclusive access to detailed financial metrics, Fair Value calculations, and expert analysis for these retail giants and more, explore InvestingPro’s comprehensive research platform.
In other recent news, Target Corporation has seen several significant developments. Bernstein analysts, led by Zhihan Ma, raised their price target on Target from $139 to $142, maintaining a Market Perform rating. Bernstein’s revised estimates reflect Target’s Q4 comparable sales growth, which is now expected at 1.5%, driven significantly by e-commerce.
Guggenheim analyst Robert S. Drbul increased the price target for Target to $155 from $145, reiterating a Buy rating. This followed Target’s strong holiday season sales performance, which showed a 2.8% rise in total sales for November and December. In response to this, Guggenheim slightly increased its fiscal year 2024 earnings per share (EPS) estimate for Target to $8.65, up from $8.60.
Truist Securities adjusted its price target on Target, increasing it to $134 from the previous $129, while maintaining a Hold rating. This followed Target’s announcement of a 2.8% increase in holiday sales, with comparable sales up by 2%. Despite the improved sales outlook, Target’s EPS guidance remains unchanged, ranging between $1.85 and $2.45.
Target has also announced the termination of its three-year diversity, equity, and inclusion goals, with plans to wrap up its Racial Equity Action (WA:ACT) and Change (REACH) initiatives by 2025. Additionally, Target Corporation has announced amendments to its bylaws, including the expansion of the Lead Independent (LON:IOG) Director role, in a recent SEC 8-K filing. The changes were made as part of a periodic review by Target’s Board of Directors.
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