Deutsche Bank is most constructive on Walmart and BJs Wholesale Club

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“Walmart, BJs, and Dollar Tree Set to Beat Earnings Estimates”

Even though retail stocks have been performing well as of late, analysts at Deutsche Bank stated in a note that was distributed to clients on Friday that they anticipate the performance of retail stocks to continue to improve.

This is still the case despite the fact that major retailers such as Walmart (NYSE:WMT), Target (NYSE:TGT), BJ’s Wholesale Club Holdings Inc. (NYSE:BJ), and Dollar Tree (NASDAQ:DLTR) have all enjoyed strong performance over the past three months.

According to the analysts at the company, management believes that there will be more evidence supporting the bull case between now and 2023.

They mentioned Walmart, BJ’s Wholesale, and Dollar Tree as three businesses that have a good chance of beating the consensus estimates for the third quarter of this year.

While Walmart and Dollar Tree are likely to maintain their previous forecasts for the full year, BJ’s Wholesale is likely to increase its projections for the year.

Discretionary Demand Drops as Stores Clear Out

The rate of trade down is increasing at a faster pace, which leads analysts to predict that “value-focused retailers will continue to gain market share” in the coming year.

But because discretionary demand seems to be going down and the store seems to be doing a lot of clearing out, “we believe that TGT’s print will at best be in line, with a likely 4Q guidance cut.”

Both Walmart and BJ’s Wholesale receive high marks from Deutsche Bank, which is a reputable financial institution. According to the company’s analysis, businesses are in an advantageous defensive position and have distinct catalysts for the coming year.

These catalysts include continued grocery market share gains, a chance to regain margins, upside from growing alternative revenue streams, membership fee increases at BJ’s, and an EPS boost from moving credit card business to Capital One. In addition, BJ’s membership fees are expected to increase.

Target’s Third Quarter Results Worrying to Company

However, the company is concerned about Target’s results for the third quarter because they anticipate that same-store sales will remain unchanged and that the gross margin will decrease as a result of more clearance sales.

According to the analysts, it is likely that TGT’s outlook for the fourth quarter will be reduced because demand has been declining for many discretionary categories and inventory levels are still relatively high (at least based on our recent store checks, which took place in early November).