Cowen & Co. is optimistic that retail stocks will be able to continue to rise amid improving traffic and store reopenings into the new year.
Analyst Oliver Chen writes that stocks in his coverage have rallied about 24% in the past three months, behind upward revisions of earnings estimates, Barron’s said.
Chen thinks "trip consolidation" will help a handful of stocks: "As people limit their potential exposure to coronavirus, they’re trying to do more of their in-store shopping in fewer locations. That benefits big box retailers that can provide more of a one-stop shopping experience, like Walmart (WMT), Target (TGT), and Costco Wholesale (COST)," Barron;s explained.
He has outperform ratings on all three stocks, and believes that the market share gains they’ve seen from COVID will remain after the virus recedes.
Chen is also optimistic about new retail and e-commerce growth. "He believes that younger shoppers will take to digitally native brands and also be more comfortable buying luxury products online, trends that should help RealReal (REAL), Farfetch (FTCH) and Revolve Group (RVLV)," Barron's said.
He rates all three at outperform, highlighting their digital advantages, and notes that Revolve’s valuation looks particularly attractive.
Meanwhile, new coronavirus cases are also surging across the country, which could lead to restrictions on businesses like restaurants, gyms and bars, and undercut consumer spending, experts told Reuters.
"Although sales growth is strong, it will slow through the rest of this year and into next year," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. "The slowing will be even larger if Congress does not pass another stimulus bill. Unemployment remains pervasive throughout the U.S. economy."
Retail sales have bounced back above their February level, with the pandemic boosting demand for goods that complement life at home, including furniture and electronics. An aversion to public transportation has boosted motor vehicle purchases.
They account for the goods component of consumer spending, with services such as healthcare, education, travel and hotel accommodation making up the other portion.
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