The Return Of Retail? Gordon Haskett Takes A Closer Look At 3 Names

It may be too early to determine whether back from the dead, but the sector's exchange traded fund, the SPDR S&P Retail (ETF) XRT, has completed a "180-degree turn" over the past three months — which has analysts at Gordon Haskett "positively biased" heading into the group's earnings reports.

The Analyst

Gordon Haskett's Chuck Grom made the following ratings changes to retail firms he covers:

• Five Below Inc FIVE was upgraded from Hold to Accumulate with a price target raised from $63 to $75.
• Sprouts Farmers Market Inc SFM was upgraded from Accumulate to Buy with a price target raised from $27 to $33.
• Wayfair Inc W downgraded from Buy to Accumulate but with a price target raised from $95 to $100.

Five Below

After meeting with Five Below's management team, Grom said he can now appreciate the revenue potential for the brand, as it has reached critical mass, the analyst said. (See Grom's track record here.)

While the retailer's business profile doesn't follow a traditional new store maturation curve, it does benefit from "aided brand awareness" and scale, which bodes well for the comps profile in the coming years, Grom said. 

Five Below's stock could benefit from a share repurchase program, which could happen sooner rather than later due to tax legislation signed by President Donald Trump, Grom said. In fact, coupled with the company's already existing "self-funding growth model," the stock boasts multiple pathways to generate a strong earnings algorithm, he said. 

Related Link: 8 Retail Stocks That Outperformed The Record-Breaking Holiday Shopping Season

Sprouts Farmers Market

Sprouts Farmers' stock has rebounded over 40 percent since it bottomed at $17.38, and the stock could see further upside ahead for four reasons, Grom said. They are:

• Expectations for alleviating cannibalization.
• Benefits from six consecutive months of inflationary food prices.
• A solid produce season.
• An improved competitive environment from niche grocers.

Looking forward, expectations for same-store improvements remain "bright," and Sprouts could even grow its store count by 10 to 12 percent over the next five years, on track to reach its goal of growing from approximately 285 stores today to 1,200 stores in the long-term, Grom said. 

Wayfair

Wayfair's stock has performed well since mid-December and approached Grom's prior price target of $95. Investors should "remain disciplined" in their approach to Wayfair, as it is a high-beta stock — although the analyst's downgrade shouldn't be interpreted as a sign of concern, he said. 

Related Link:

Analyst: Tougher 2018 Setup Likely To Weigh On Wayfair