The Analysts Upgrade… Retail Stocks?

It’s Not All Carnage In The Retail Sector

There is carnage in the retail sector to be sure but not all within it are suffering. Be it branding, positioning, DTC sales, or a combination of all three some in the retail world are set up to outperform in the coming year. The three stocks we’re focused on today have all recently reported earnings, all beaten their expectations, and all are getting attention from the analysts. In our view, the retail sector is facing some headwinds that will help the industry finish shaking out the weak hands and leave the winners in even better positions than they are now in. 

JPMorgan Says Ulta Is A Winner! 

Ulta Beauty (NASDAQ: ULTA) is one of the more prominent victors in the Mall space having gained market share from traditional cosmetics companies like Revlon. This, along with the upswing in social gatherings has the company on track for growth amid a darkening consumer backdrop. In the eyes of JPMorgan, the stock is a winner and one of two favorites in the sector. 

"We expect the stock to continue to look forward to a strong 'cyclical upswing' as COVID-19 fades and event-starved Americans immerse into social gatherings/experiences with beauty (and apparel) benefiting from this surge.’

Ulta Beauty has received at least 10 shout-outs from 22 analysts since the Q1 report including two from JPMorgan. In the first, the company raised its price target to $490 compared to the $458 Marketbeat.com consensus, and the other is a doubling-down of that same sentiment. JPMorgan carries an Overweight rating compared to the broader consensus of weak Buy but that sentiment and the price target are trending higher. The Marketbeat.com consensus implies about 16% of upside for the stock and it is trending higher in the 30 and 90-day comparisons. 

Morgan Stanley Gets Defensive With Dollar General 

Morgan Stanley upgraded Dollar General (NYSE: DG) to Overweight from Equal Weight stating it is one of the more undervalued names in its defensive-stocks coverage universe. In their view, the company is a high-quality defensive name that comes with some offensive characteristics including the potential for material margin improvement despite an economic downturn.  

"It is arguably our most defensive, counter-cyclical company — yet while the stock has outperformed the market year to date, it has performed merely in line with other defensive stocks in our coverage."

Morgan Stanley’s Overweight rating compares well to the broad consensus of Firm Buy, as does the new price target. The new price target of $250 is $5 ahead of the Marketbeat.com consensus which is up versus last year, 3 months ago, and last month and implies about 5% of upside for share prices. 

Autozone Upgraded On “Durable” Revenue And Earnings Growth 

Morgan Stanley also upgraded Autozone (NASDAQ: AZO) to Overweight from Equal Weight stating the company has a more durable revenue and earnings growth outlook. The firm thinks the stock has at least 20% of upside ahead of it which is well above the current consensus target of $2,142. Autozone is also a top pick at Wells Fargo which holds an Overweight rating as well as Wall Street’s 2nd highest. price target. 

"AZO is a self-help story (its commercial playbook is working), the business has a history of prudent expense management, and DIY Auto is a defensive category. These factors enhance AZO's earnings visibility amid an uncertain macro backdrop. In addition, we are confident in AZO's pricing power and think there is more DIFM upside from the mega hub strategy."