In recent analysis, it is indicated that consumer spending at hardline and broadline retailers has likely shown improvement in the third quarter on a sequential basis. Noteworthy companies such as Home Depot, Lowe's, Five Below, and Walmart are expected to surpass their comparable sales forecasts for the period.
This insight was shared by analysts at Truist Securities. Truist has adjusted price targets for several stocks within their retail coverage universe, aiming to reflect the broader market's multiple expansion alongside the anticipated onset of a rate cut cycle. Accordingly, the price target for Home Depot has been lifted from $395 to $455, with a maintained buy rating.
Truist's card data suggests that sales at the home improvement giant are currently tracking 100 to 200 basis points above their projected 3.5% decline in third-quarter US comparable sales. In a similar vein, Lowe's price target has also seen an increase, moving from $269 to $306. The retailer's third-quarter sales are said to exceed Truist's estimate of a 2.8% decline by 100 basis points. Analysts, including Scot Ciccarelli, have noted that most 'cyclical' names, such as Home Depot and Lowe's, are poised to advance beyond expected fundamentals for a while, indicating a potential period where stocks may appear expensive as the rate cut cycle commences. For Walmart, Truist has reiterated a buy rating along with a price target of $89, anticipating that the retailer’s third-quarter sales will be approximately 100 basis points ahead of their above-consensus estimate of 4% growth in comparable sales.
Analysts observed that earlier in the third quarter, sales were aligning with their forecasts, but there has been a recent acceleration in sales activity. Meanwhile, Five Below, which is rated as hold by Truist and has a price target of $87, experienced a soft start to third-quarter sales. However, the sales trajectory improved significantly in the past month, suggesting that the retailer may now exceed lowered expectations, especially aided by a robust Halloween offering.
Current sales at Five Below seem to be running 200 to 300 basis points ahead of Truist's projections, which initially anticipated a comparable sales decline of 5.5%. In addition to these, Truist has also raised its price target for AutoZone to $3,501 from $3,341, reflecting strong performance. O'Reilly Automotive also received a price target increase from $1,204 to $1,290, and Tractor Supply's target went up from $293 to $325.
These adjustments illustrate a positive shift within the retail landscape as consumer spending appears to rebound..