Here Is Why One Analyst Says These 2 Retailers Have Double Digit Upside Potential Ahead

One analyst says these 2 under-the-radar retail picks should see 20%+ upside as they continue to benefit from an influx of consumer spending in the home furnishings space.

“Home is where the heart is” has never been more true as the coronavirus pandemic continues to keep everyone hunkered down at home.

With shoppers sticking close to their nests, one area that has seen an influx of consumer spending in 2020 is home furnishings. And as home sales continue to rise, the bulls say the trend of spending to improve the at-home experience looks set to continue – especially as the pandemic continues to wreak havoc just as the cold-and-flu season kicks off.

While there are several obvious winners from this trend, Jefferies was out this week with two under-the-radar names in the space they say should benefit.

Analyst Janine Stichter rated both TJX (NYSE: TJX) and Urban Outfitters (NASDAQ: URBN) Buys this week, issuing a price target of $67 for the former and $27 for the latter. That implies upside of nearly 27% for TJX and 32% for URBN.

“We see potential for growth in home decor to accelerate for the holidays as it becomes a key gift-giving item and tops many consumers’ wish lists,” Stichter wrote. “In what is likely to be a very unusual holiday season, many of the typical top gift categories (apparel, beauty, accessories) may be less in demand. Further, gifting apparel may be particularly problematic (with the exception of sweats/lounge), with many unwilling to visit a store to return an item in the case of fit issues.”

This is good news for TJX, which owns HomeGoods—a home furnishings outlet—and TJ Maxx and Marshalls, which both offer a mix of discount clothing and accessories, as well as home furniture and accessories.

For Stichter, TJX shares are a top pick given the shift to off-price retail amid the coronavirus-induced recession.

Stichter added, “People aren’t going to the mall, but they are going to supermarkets or essential retailers in strip malls” right now, where many of TJX’s stores are located.

While TJX delivered a surprise loss due to store closures amid the pandemic when it reported earnings late last month, several analysts said the stock is one investors should buy on weakness.

Among them was Guggenheim analyst Robert Drbul, who reiterated his Buy rating on the stock last month and wrote in a note that investors should use any “share price weakness as an incremental buying opportunity.”

“We continue to believe off-price, and TJX in particular, will emerge from the COVID-19 disruption in a stronger competitive position,” Drbul wrote. 

Telsey Advisory Group’s Dana Telsey added that in the long run, TJX’s “diversified business model and fortress balance sheet should allow it to gain market share from weaker competitors.”

As for Urban Outfitters, while many may associate the company more with apparel, the company has long carried home furnishings and accessories both through its namesake brand and its higher-end Anthropologie brand.

Despite the pandemic, Urban Outfitters delivered an earnings surprise when it reported earlier this month. The company reported earnings per share of $0.35, while analysts had expected a loss of $0.40 per share.

“I’m pleased to announce URBN produced solid revenues and profits for the second quarter driven by strength in the digital channel,” CEO Richard Hayne said in a statement. “Notably, all brands were profitable and enter the fall selling season with lean inventories and positive momentum.”

Following URBN’s earnings, Telsey boosted her rating on the stock from Sector Perform to Outperform and her price target from $10 to $30 – roughly 47% higher than the current price. 

“Given the challenges to the operating environment, Urban’s second-quarter performance is an especially positive surprise, with all brands profitable,” Telsey wrote in a note, adding that the company’s top-line trajectory heading into the holiday season looks solid.

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