On Wednesday, DA Davidson projected a positive outlook for the retail sector in 2025. The firm anticipates a rebound year for the S&P Retail Select Industry Index (XRT), following its underperformance relative to the S&P 500 by approximately 1,050 basis points as of December 10, 2024. Despite this, the XRT managed to outperform the equal-weighted S&P 500 by 40 basis points.
Within DA Davidson's coverage, half of the large retail names surpassed the S&P 500's performance, and a majority overtook the equal-weighted market. Additionally, three out of twelve smaller or non-traditional retail stocks have outperformed the market this past year.
Looking ahead to 2025, DA Davidson's "Baker’s Dozen" predictions include a more than 4% increase in retail sales and margin improvements. The firm also expects the XRT to outshine the market for the first time since 2021, driven by "Best-of-Breed Bison" names. For the auto parts sector, the company foresees a recovery in comparable sales with O'Reilly Automotive (NASDAQ:ORLY) leading the competition, prompting an increase in ORLY's price target.
The firm also predicts that BJ's Wholesale Club Holdings (NYSE:NYSE:BJ) will outperform Costco Wholesale Corporation (NASDAQ:COST), which is currently trading at an all-time high multiple. Additionally, DA Davidson anticipates better performance in comparable sales and profit growth for Grocery Outlet Holding Corp (NASDAQ:GO) in 2025 compared to 2024. The firm also expects improved discretionary spending to benefit Target Corporation (NYSE:NYSE:TGT) and Walmart Inc. (NYSE:NYSE:WMT), leading to raised price targets for both companies. InvestingPro analysis shows Target trading at an attractive P/E ratio of 14.3x with a solid dividend yield of 3.32%, having maintained dividend payments for 54 consecutive years. The company's current Fair Value assessment suggests it may be undervalued, with a GOOD overall financial health score.
Home Depot Inc. (NYSE:NYSE:HD) is projected to surpass Lowe's Companies Inc. (NYSE:NYSE:LOW) as both are expected to return to positive comparable sales, resulting in an increased price target for HD. Other predictions include a positive shift in comparable sales for Best Buy Co. Inc. (NYSE:NYSE:BBY) in the first half of 2025, improved margins for Dick's Sporting Goods Inc. (NYSE:NYSE:DKS), accelerated margin expansion for Tractor Supply Company (NASDAQ:TSCO), and a comps rebound for Ulta Beauty Inc. (NASDAQ:ULTA) as competitive pressures ease.
DA Davidson also highlighted Lovesac Co. (NASDAQ:LOVE) as a top small-cap pick, alongside other small-cap stocks, with increased price targets for Citi Trends Inc. (NASDAQ:CTRN), LOVE, and RumbleOn Inc. (NASDAQ:RMBL). These adjustments reflect the firm's expectations for 2026 estimates and expanding market multiples. For comprehensive analysis of these retail stocks and more, including exclusive ProTips and detailed valuation metrics, visit InvestingPro, where you'll find expert insights and advanced screening tools for over 1,400 US stocks.
In other recent news, Walmart Inc and Amazon.com (NASDAQ:AMZN) have reported record-breaking sales during the recent Black Friday and Cyber Monday events. Walmart announced its most successful sales day ever, with significant online purchases including pre-owned Rolex watches and Pokemon cards. Amazon also reported record-breaking sales for its 12-day shopping period ending on Cyber Monday, with top-selling items including Medicube devices, Samsung (KS:005930) TVs, and Shark vacuums.
Meanwhile, Target Corporation experienced a dip in Black Friday traffic, despite the release of exclusive products such as the Taylor Swift "Eras Tour Book". Analysts from Deutsche Bank (ETR:DBKGn) and KeyBanc noted subdued activity at Target stores, attributing this to inconsistent inventory levels and a lack of organization.
However, Target shares saw a rise due to strong toy traffic and holiday promotions, as reported by Bank of America. The company reintroduced several sales initiatives and launched a new "Early Black Friday" promotion, which seemed to resonate with consumers.
On the analyst front, Oppenheimer maintained its Outperform rating on Target stock, reinstating it to its top pick status. However, BMO Capital Markets and TD Cowen lowered their price targets due to challenges in store sales, digital sales, and supply chain margins. Despite these adjustments, Target reported positive developments including a 6% increase in beauty category sales and an 11% rise in digital sales.
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