By Sam Boughedda
In a note to clients Friday, Deutsche Bank analysts told investors that while retailers Walmart (NYSE:WMT), Target (NYSE:TGT), BJ's Wholesale Club Holdings Inc (NYSE:BJ), and Dollar Tree (NASDAQ:DLTR) have enjoyed solid gains over the last three months, they see further upside ahead.
The analysts said the firm believes there will be more evidence supporting the bull cases into 2023, naming Walmart, BJ's Wholesale, and Dollar Tree, as well positioned to top 3Q consensus estimates. In addition, they believe Walmart and Dollar Tree will reiterate full-year guidance while BJ's Wholesale will raise its full-year guidance.
"We think value-focused retailers will continue to gain market share next year on accelerating trade down," commented the analysts. "On the other hand, we believe TGT's print will at best be in line, combined with a likely 4Q guidance cut given softer discretionary demand trends and what appear to be ongoing clearing activity at the retailer."
Deutsche Bank is most constructive on Walmart and BJ's Wholesale. The firm stated that the companies are defensively positioned with clear catalysts over the next 12 months, including ongoing grocery market share gains, an opportunity to recapture margins, upside from growing alternative revenue streams, membership fee increases at BJ's, and an EPS lift from the credit card migration to Capital One.
On the other hand, the firm is cautious about Target into its Q3 results as they anticipate in-line SSS and a weaker gross margin on elevated clearance activity.
"Further, softer demand for many discretionary categories and what we view as still elevated inventory levels (at least based on our recent store checks, including in early November) will likely mean TGT will lower its 4Q outlook, driven by gross margins," added the analysts.