Goldman Sachs analyst Kate McShane has recently highlighted a drop in investor confidence regarding various retail firms.
This change is linked to concerns about consumers' overall financial health, with the resumption of student loan payments and increasing gas prices being the contributing factors.
In contrast, Goldman Sachs maintains a positive outlook based on a strong labor market.
In this mixed landscape, McShane has concentrated on four significant retail giants, examining how these broader trends have impacted their stocks.
Dollar Tree, Inc. DLTR: McShane upgraded Dollar Tree to Buy from Neutral, lowering the price target to $137 from $150.
The analyst upgraded the stock, citing solid earnings growth potential supported by improving traffic trends with sticky new customers, a discretionary cash flow outlook for lower and middle-income consumers in 2024, and better shopability/in-stocks after recent investments.
The analyst thinks lower freight costs should become a meaningful tailwind for DLTR in 2H23.
Dollar Tree's multi-year turnaround efforts should generate an EPS CAGR of +19% through FY26, well above most broadline/dollar store peers, notes the analyst.
Ollie's Bargain Outlet Holdings, Inc. OLLI: McShane upgraded Ollie's Bargain to Buy from Neutral, raising the price target to $83 from $75.
The analyst expects tailwinds from the favorable closeout environment to remain in the near term while the company's growing scale drives a virtuous cycle of improved procurement opportunities and sales growth, and margins are set to return to the targeted ~40% range.
According to the analyst, relative to other high-growth specialty retail names, OLLI's valuation remains attractive despite returning ~58% year to date (through October 12th).
The analyst raised FY23 EPS estimate to $2.73 (from $2.70) to reflect slightly higher sales and a higher operating margin.
BJ's Wholesale Club Holdings, Inc. BJ: McShane downgraded BJ's Wholesale to Neutral from Buy, lowering the price target to $73 from $75.
The analyst sees limited earnings upside to consensus estimates for FY24.
Lapping the 53rd week in FY23 should generate a ~3% drag on y/y EPS growth in FY24 for BJ, noting management indicated the extra week should provide a benefit of low teen cents per share in FY23.
The analyst thinks this is a temporary impact and sees FY25 growth returning to the long-term algorithm.
The analyst lowered the FY24/FY25 EPS estimates to $4.04/$4.43 from $4.00/$4.46, respectively.
National Vision Holdings, Inc. EYE: National Vision, which primarily belongs to the optical retail industry, has been downgraded by McShane to Neutral from Buy, lowering the price target to $16 from $25.
The analyst noted ongoing exam capacity constraints, margin headwinds due to the continued remote medicine rollout, and termination of the Walmart Inc. WMT partnership as near-term headwinds.
The analyst lowered FY24 and FY25 adj. EBITDA (company definition) is estimated to be $172.5 million (from $186.0 million) and $203.8 million (from $228.9 million), respectively, reflecting lower sales and margins.
Price Action: DLTR shares are trading higher by 4.40% to $114.94, OLLI up by 1.90% to $72.79, BJ up by 1.44% to $69.49, and EYE shares lower by 1.1% to $15.26 on the last check Tuesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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