Morgan Stanley Upgrades Target, Dollar General, Walmart, and Valvoline
Morgan Stanley analysts have made upgrades for several retailers, including Target, Dollar General, Walmart, and Valvoline. The upgrades are based on the analysts’ assessment of improving fundamentals and achievable 2024 estimates combined with stronger 2025 earnings per share (EPS) growth.
Morgan Stanley Downgrades Tractor Supply and Driven Brands Holdings
In addition to the upgrades, Morgan Stanley also made downgrades for Tractor Supply and Driven Brands Holdings. The decision to downgrade these retailers was made despite the slightly more favorable fundamental view.
Factors Driving the Upgrades and Downgrades According to Morgan Stanley
The analysts at Morgan Stanley highlighted three key inflections that influenced their decision to upgrade or downgrade the retailers. These factors include lower interest rates, bottoming in durables (consumer goods with a longer lifespan), and a late 2024 or early 2025 housing inflection. These factors played a significant role in the analysts’ assessment of the retailers’ future performance.
Retailers Reflecting Improvements, But Consumer Sector Remains Under Pressure
While Morgan Stanley’s upgrades reflect the improvements in the retailers’ fundamentals, the consumer sector as a whole is still under pressure. Particularly, the “goods” consumer and the durable goods market are experiencing challenges. The analysts expect that durable goods growth will be flat in 2024, leading to an improving but still below-average year. The outlook for 2025 is also not robust, tempering the analysts’ enthusiasm.
Morgan Stanley Raises Price Target on Target to $165
Among the retailers, Morgan Stanley raised its price target on Target to $165 from $140. This implies an upside of more than 17% from the current price. The analysts find Target an attractive investment due to its potential for earnings recovery from idiosyncratic challenges and an expected rebound in discretionary spending. With a shift towards more risk-on and cyclical stocks, Target appears to be a favorable investment choice.
In conclusion, Morgan Stanley’s upgrades and downgrades of various retailers are driven by the assessment of improving fundamentals and achievable estimates for the coming years. While there are signs of improvements, the analysts remain cautious about the consumer sector as a whole. The upgrades and downgrades reflect the analysts’ expectations for the future performance of these retailers in a changing market environment.
Analyst comment
Positive news: Morgan Stanley upgrades Target, Dollar General, Walmart, and Valvoline due to improving fundamentals and strong earnings growth. They raise Target’s price target to $165, suggesting a potential 17% upside.
Negative news: Morgan Stanley downgrades Tractor Supply and Driven Brands despite a slightly more favorable fundamental view.
Neutral news: The consumer sector as a whole is still under pressure, with challenges in the durable goods market and expectations for below-average growth in 2024 and a tempering outlook for 2025.
As an analyst, I expect the market to react positively to the upgrades, particularly for Target, which offers potential for earnings recovery and discretionary spending rebound. However, caution should still be exercised due to the challenges in the consumer sector and the tempered outlook for the coming years.