3 Consumer Discretionary Stocks Oppenheimer Loves

In a report issued Sunday, Oppenheimer analysts Anna Andreeva and Janet Lynne Knopf look into retailers, following the first quarter earnings season.

According to the note, retailers covered by the firm retrieved, in average, a 2 percent decline in earnings, mainly driven by bad weather and ports problems. For the second quarter of the year, the sell-side expects a further 4 percent fall in earnings. However, they anticipate a typical "hockey stick" in the second half of the year, with earnings up 6 percent and 15 percent in the third quarter and fourth quarter, respectively.

“With macro factors less of a tailwind than expected, tougher compares in back half, and lofty goals for gross margin recovery in 2H15, trading at 17x, our consumer discretionary universe already reflects some optimism,” the analysts explain. They thus remain selective, especially anticipating typical summer under-performance, and pick only three stocks they like in terms of risk/return profile: Ascena Retail Group Inc ASNA, Lululemon Athletica inc. LULU and American Eagle Outfitters AEO, all Outperform rated.

The firm sees Ascena’s “core businesses stabilizing with new Justice leadership effecting change and meaningful upside from ANN synergies.”

Regarding Lululemon, the analysts like the company’s dominant position in the athletic apparel market (multiple came in 3-4 points) and the set up into earnings, scheduled for Tuesday.

Finally, for American Eagle Outfitters they see “continued product momentum with promotions pulled back an offset to tougher 2H15 compares.”

On the other hand, Oppenheimer sees a risk/return still to downside for Abercrombie & Fitch Co. ANF, Fossil Group Inc FOSL and Michael Kors Holdings Ltd KORS.

A General Outlook

The analysts also take a look at how the rest of the year shapes up. “With flat to down earnings last two years, ’15 Street estimates for 11% EPS growth embed hockey stick recovery in 2H15,” they explain. Upside expectations are largest for

Chico's FAS, Inc. CHS and Urban Outfitters, Inc. URBN. “AEO, LB, GPS, and PLCE are least levered to 2H. While positive sales/inventory spread continues into 2Q15, spread has narrowed (delayed product given ports); inventories still elevated at GPS, ANF, FOSL and URBN,” they add.