© Brendan McDermid/Reuters Bath & Body Works. Brendan McDermid/Reuters Bath & Body Works, Target and Amazon are among the retail stocks Bank of America is recommending investors "grab while you can," as consumers gear up for holiday shopping with supply-chain headaches poised to worsen.
CONSTELLATION BRANDS, INC.
Same-store sales during the fourth quarter look set to rise by 4.9%. Consumers are flush with cash they stockpiled during the COVID-19 pandemic, while stores are largely free from reduced store hours and stay-at-home mandates from a year ago.
"This holiday season, we will lap all the store capacity constraints and expect strong comps in most categories as shoppers are more comfortable to do in-person shopping," said Bank of America retail analyst Lorraine Hutchinson in a research note published Wednesday. "And, as socialization continues to pick up, it is likely consumers will do more gift-buying and personal shopping (for occasionwear, for example) this season."
Retailers have started encouraging people to start shopping earlier than usual to reduce the risk of items being sold out or packages arriving after the holiday season ends.
The early-shopping push comes as the retail sector, like others, is dealing with supply-chain problems such as tied-up seaports, labor shortages and semiconductor shortfalls affecting the merchandise they sell.
By offering perks like shopping services, retailers can spread out holiday spending and likely pull forward gift shopping, the bank said. That would help mitigate worsening supply-chain headwinds, with many retailers and restaurants already hiking prices to deal with increased costs.
Bath & Body Works was the investment bank's top pick among specialty retailers. The chain is one of the best-positioned retailers into the holidays as well as 2022, and the stock trades at a discount to makeup and personal care peers, according to the note.
"We think a return to more normal gifting this year (teachers, service providers, etc) will be a positive for demand for candles, lotions and gift packs," BofA said.
It also noted the supply chain at Bath & Body Works is roughly 90% domestically anchored, making it largely insulated from factory shutdowns and international shipping delays that put deliveries for other retailers at risk. Analysts put the price target for Bath & Body Works stock at $90.
Walmart and Target were the bank's top picks among discount retailers. The big-box giants have "strong inventory positions and more favorable port access, long-term container shipping agreements, and chartered vessel capacity." The price targets were $190 and $317, respectively.
Starbucks ranks first among restaurant stocks as higher gift card sales should lead to stronger demand for food and drink items. The price objective was $135.
"Our Hardlines top pick is Lowe's given that it has more negotiating power with suppliers and transportation partners compared to smaller-scale home improvement retailers," said BofA, which had a $281 price objective on the company.