The most upgraded retail stocks that should be on your radar

Key Points

• Costco is among the Most Upgraded Retail Stocks and is on track to hit new highs in 2024. 
• Domino's and Wingstop are two Most Upgraded stocks; one is set to complete a reversal, the other for a significant correction. 
• Williams-Sonoma is a Most Upgraded name despite its low Reduce rating, solid cash flow, healthy dividend, value and long-term growth outlook. 

Retailers have certainly had a tough time in 2023, but not all experience the same headwinds. While names like Target struggle to gain traction, others outperform their estimates and grow. Even in cases where revenue is down compared to last year, cash flow remains strong, providing a lever for investor returns, and the analysts are noticing. This article is a quick look at the 4 most upgraded retail stocks over the past 3 months, what’s driving their action and where their stock prices may be heading over the next few months.

Costco: the most upgraded retail stock and market leader

Costco NASDAQ: COST is among the best-positioned retailers today. Not only does it offer value to consumers, but its members-only business model provides a moat not many can share. While memberships don’t guarantee return business, consumers are more likely to utilize them than not, and that is seen in the internal results. The company has grown by refocusing on everyday health and grocery items, gaining market share against traditional grocers and Target. 

The latest earnings report included better-than-expected top and bottom-line results that sparked positive commentary from analysts. The analysts issued 11 revisions since the FQ4 earnings report, pegging the stock at Moderate Buy with a consensus target below the current market action. That may provide a headwind for the stock price, but it is trending higher, led by results, and may continue to trend higher following the next release. Until then, most of the recent targets are well above the consensus and suggest the uptrend in price action will continue to set new all-time highs in 2024. Among the potential catalysts is a special dividend that could come at any time. 

Domino’s Pizza impresses analysts at investor day event

Domino’s Pizza NYSE: DPZ recently held an investor day event that has jazzed the analysts' community. Marketbeat.com picked up 10 revisions, including 1 upgrade to Buy from Hold, 9 price target revisions and 1 downgrade. The downgrade is to Neutral with a $400 price target, assuming the stock is trading near fair value today, but the consensus of the ten is favorable to the market and implies another 10% upside. 

Takeaways from the event include updated guidance with near-term growth expected at the high end of the target range and long-term growth supported by international expansion. The company thinks the international market could grow to 40,000 units or 4X the US footprint, providing a pathway for the company to more than double in size. The company also targets a more aggressive 1,100 per annum store count growth rate and sees margins widening on leverage. 

High-flying Wingstop in need of a correction

Wingstop NASDAQ: WING has been in a robust uptrend all year and is likely to move higher over the long term, but correction is on tap in the near term. While results are solid and persistent outperformance is present, the high 100X price multiple for this year and 90X for next is a formidable barrier to higher share prices. The stock also trades well above the analysts' highest price target, suggesting the market has overrun itself and is set to fall. However, if it develops, such a pullback is a likely buying opportunity in this stock. The analysts rate Wingstop a Hold and have been lifting the market all year, so support should remain solid unless there is a change in the fundamentals. 

Williams-Sonoma: A retailer analysts love to hate? 

Williams-Sonoma NYSE: WSM is one of the harder-hit retailers, with revenue falling double-digits in 2023. The analysts are also not in love with it despite its margin strength, cash flow, long-term growth targets and capital returns. They rate it at Reduce but have also been lifting their price targets all year. However, the consensus is steadily rising despite lagging the market and may follow it higher until the next earnings report. That report may spur the market to set another new high; until then, the market is trading near critical resistance and above the analyst's highest target, where it is in danger of correction. A pullback in this market may find support at or near the $180 level.