The Covid-19 pandemic played havoc with retailers earlier this year. However the sector’s recent rally reflects investor optimism that improving traffic and store reopenings can continue into 2021, argues Cowen & Co., and that could further support the stocks.
Analyst Oliver Chen writes that stocks in his coverage have rallied about 24% in the past three months, behind upward revisions of earnings estimates.
One of the key themes he thinks will continue to play out is trip consolidation: As people limit their potential exposure to Covid, they’re trying to do more of their in-store shopping in fewer locations. That benefits big box retailers that can provide more of a one-stop shopping experience, like
He has Outperform ratings on all three stocks, and believes that the market share gains they’ve seen from Covid will remain even after the threat of the virus recedes.
Elsewhere, Chen is also optimistic about new retail and e-commerce growth. He believes that younger shoppers will take to digitally native brands and also be more comfortable buying luxury products online, trends that should help
(RVLV). He rates all three at Outperform, highlighting their digital advantages, and notes that Revolve’s valuation looks particularly attractive.
He’s also upbeat about recent trends in the China luxury sector, which reinforce his recent upgrade of
Canada Goose Holdings
(GOOS) that highlighted the company as a play on increased outdoor activity amid the pandemic.
By contrast, he has Market Perform ratings on
American Eagle Outfitters
(JWN), but writes that greater visibility around a vaccine, and thus a return to a more normal environment that includes dressing up, could help the stocks, especially as “some existing execution issues are hopefully ‘temporary.’”
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