Today, a year since the beginning of the pandemic, there are two types of retailers for investors to focus on. The first are those who got a boost from the pandemic and are on track to leverage those gains in the future. The second are those who’ve weathered the storm, come out stronger than before, and are ready to leverage the economic reopening for all that it is worth. In today’s lineup of noteworthy retail stocks, we have a little of both. What they all have in common is investor appeal and growing interest from the analyst community, a combination that is driving their share prices higher.
The Gap Gets A Nod From :Wells Fargo
Wells Fargo (NYSE:WFC) maintained an overweight rating and boosted its price target on The Gap Inc (NYSE:GPS) a meeting with executives. The analysts emerged with a new insight into the company that makes them feel the portfolio of brands is not only undervalued but on track to exceed the consensus estimates. In the note, Wells Fargo references a refocus on the core brand, Old Navy’s ability to take market share, and a bright outlook for the Athleta franchise. What we find interesting is that there’ve been a full ten price target increases since the Q3 report came out, Wells Fargo’s $40 target is only the latest and highest assuming a 25% upside to recent price action.
"A lot to like, see bull case building from here, stay long. With a solid 4Q print now behind us, we believe the bull case can continue to build from here. We continue to see an undervalued portfolio – led by Old Navy and Athleta (which by themselves should be valued at $35+ per share) – with a call option on the Gap brand (1rst positive comp in US in 4Q since 2017, Yeezy launch upcoming) potentially adding gravy to thesis."
GPS Stock Chart
Dollar General A Defensive Value Play
Dollar General Corporation (NYSE:DG) got its shout-out from Atlantic Equities. Analysts there upgraded the stock to Overweight from Neutral once again citing valuation. Trading at 17X this year’s and 19X next year’s earnings the stock does represent a bargain relative to the broad market. The caveat we have to offer is that Dollar General is only yielding about 0.75% compared to the S&P 500 average near 1.50% and a more robust 3.0% offered by The Gap albeit The Gap is a much riskier play on the consumer.
"We see the recent pullback in valuation as an opportunity to enter into a fundamentally high-quality, long-term growth, defensive retail story. While there are concerns for the near-term, particularly around the difficult YoY comparisons, as well as wage increases, inflation, freight costs, we believe those are understood and in the price."
DG Stock Chart
Burlington On Tap For Accelerated Earnings Growth
The analysts at Morgan Stanley (NYSE:MS) upped their bullish view on Burlington Stores (NYSE:BURL) following a meeting with management. The new insight led them to up the bias on their bull-case thesis for the stock stating possible upside to their $360 price target or more than 12.5% upside. The current consensus is near $275 which is well below the current price action. The trend in consensus target is what interests us, however, having edged up more than 12% over the last 30 days on over a dozen upgrades.
Shares of Burlington Stores are up nearly 3.0% following the analyst’s call and trading at an all-time high. Based on the trend of upgrades we expect to see this stock continue moving higher in the near, mid, and long-term as the company executes on its growth strategy.
BURL Stock Chart