Barclays came out negative on the U.S. Retail Broadlines/Hardlines sector in a report Thursday entitled “It’s About to Get a lot Harder.”
Analyst Matthew McClintock sees an asymmetric risk profile for investors at this stage of the economic cycle. They highlighted that revolving consumer credit has accelerated at the same time retails sales have decelerated. This, according to the analyst, suggests we are at the later stages of the economic cycle.
Even if growth continues given lower gas prices, they see margin tailwinds ending as employee and IT costs are set to accelerate.
Specifically, the firm assumed coverage of Walmart (NYSE: WMT) ($70 PT) and Costco (NASDAQ: COST) ($180 PT) at Equal Weight and downgraded Target (NYSE: TGT) ($70 PT) to Underweight from Overweight.
They favor the Auto Part and Home Improvement sectors and are cautious on the Big Box and Home Furnishings sectors.