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Here's Why DA Davidson Is Recommending Best Buy, Target, Walmart

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Here's Why DA Davidson Is Recommending Best Buy, Target, Walmart

DA Davidson analysts initiated coverage of a handful of retailers Friday and rated them based on their exposure to the current "stay, play, earn, and learn from home" environment.

Michael Baker initiated coverage of Best Buy Co Inc (NYSE: BBY) with a Buy rating and a $118 price target.

Baker initiated coverage of Target Corporation (NYSE: TGT) with a Buy rating and a $152 price target.

Baker initiated coverage of Walmart Inc (NYSE: WMT) with a Buy rating and a $148 price target.

Best Buy: Best Buy is among the best-positioned retailers to capitalize on the "stay, play, earn, and learn from home" trend, Baker wrote in the note. The company boasts all the products necessary for people to relax and stream video, stay connected with co-workers and learn remotely.

Best Buy's recent momentum is likely to be sustained as the work-from-home trend lasts longer than previously expected while the school year is weeks away from mostly kicking off remotely, the analyst wrote.

Meanwhile, Best Buy has been stealing market share from rivals in each of the past six years, including an average of 470 basis points annually over the past four years, Baker wrote. This trend should continue, especially after second-quarter comps were running at 2% positive versus an industry-wide decline of 24.7% in May and June.

Target: Target built a reputation of offering compelling private label merchandising products across different categories, Baker wrote in the note. During the early days of the COVID-19 pandemic, the company's branded products contributed to accelerating comps.

In fact, comps likely rose above 30% in the second half of April when consumers received their stimulus checks, the analyst wrote. Looking forward, Target's exposure to basic products, outdoor living, and consumer electronics should help drive comps.

Walmart: Walmart is well exposed to take advantage of the demand for food and home products as around 56% of all sales come from grocery and related items, Baker wrote in the note. In fact, comps during the pandemic hit a record-high level and this wouldn't have been possible without prior investments in its omnichannel network.

Walmart is leveraging recent momentum through new investments in the business, including in subscription services, home delivery, and next day delivery through distribution centers. Walmart's strategy of investing in its business has also resulted in better savings for consumers that translated to market share gains for Walmart.

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