3 Retailers to Monitor Closely Next Week

Key Points

– Target has experienced a decline in share price, but the downside is already factored in.
– Ross Stores has been affected by inflation, but investors should consider the company’s cautious management.
– Walmart is already at all-time highs, and its upcoming earnings report could drive the stock even higher.

With earnings season in full swing, investors are closely monitoring various industries. Inflation has had a significant impact on sectors such as banking and technology, making it crucial for companies to demonstrate their ability to adapt. The retail industry has also felt the effects of inflation, as rising prices and stagnant wages force consumers to tighten their spending.

Although recent inflation readings have shown signs of cooling, this earnings season remains pivotal for retailers. Here are three retailers to watch closely as they release their reports next week.

Target:

Target Corporation (NYSE: TGT) has struggled over the past six months, with shares declining nearly 30% since February. The company’s stock is currently trading at multi-year lows and is under pressure from bearish investors. The upcoming Q2 earnings report will be a critical indicator of whether a turnaround is underway.

For Target’s shares to rebound, revenue needs to stabilize or show improvement, while margins should also demonstrate positive growth. However, Target does offer positive signs for potential investors. The company recently increased its dividend and initiated a share buyback program. These actions indicate management’s confidence in the company’s earnings potential and belief that the stock is undervalued.

Despite these positive factors, analysts at Raymond James downgraded Target’s rating two weeks ago, citing concerns about soft industry trends and potential drops in consumer spending. However, with shares trading significantly lower than their all-time highs, much of the bearish sentiment may already be priced in. A positive surprise in next week’s earnings could potentially trigger a strong rally.

Ross Stores:

Ross Stores Inc (NASDAQ: ROST) has fared better than Target over the past year, with shares remaining relatively flat since February and only a 15% decline from their all-time high.

Ross Stores, as a discount retailer targeting low-income consumers, has managed to weather many of the headwinds that have affected Target. Regardless of economic conditions, people still need to purchase basic necessities, making Ross a go-to brand for many shoppers. In fact, inflation may have even benefited Ross, positioning the company as a potential hedge for investors.

Ross Stores offers a respectable dividend yield of 1.2% and has a management team that is highly regarded on Wall Street. In their last earnings report, management issued conservative forecasts, leaving investors curious about whether this cautious approach was justified or not. The upcoming earnings report will provide insight into the accuracy of these forecasts.

Walmart:

Walmart Inc (NYSE: WMT) stands out as the strongest retailer among the three mentioned. The company’s shares have already reached all-time highs and are trading more like growth stocks such as Apple Inc (NASDAQ: AAPL) than traditional brick-and-mortar retailers.

This impressive performance has attracted attention in the market, resulting in an upgrade from Piper Sandler, who raised Walmart’s rating to Overweight ahead of the upcoming earnings report. They anticipate increased sales following recent price reductions.

Additionally, analyst Edward Yruma predicts that as inflation eases, Walmart will steadily expand its market share. He has set a price target of $210, implying a potential further upside of around 30% from the current share price.

Investors will closely analyze next week’s earnings report to ascertain if Walmart’s strong growth continues. A positive outcome could drive the stock to new all-time highs.

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