Analyst Sees Retailers Benefitting From Lowered Consensus

Despite high valuations for the shares of big retailers, an analyst said Monday that an improving economy and cheap gas will drive many of them higher. Moreover, a string of disappointing 2015 guidance from major players has reset Wall Street expectations and lowered the bar for potential earnings beats, according to Cowen & Co.'s Oliver Chen. The analyst singled out Target Corp., (NYSE:

TGT

) for its ability to capitalize on higher consumer spending and likely growth in same-store sales. Also among Chen's "top picks" are four companies he cited for growth in "non-apparel" categories. Those include Sally Beauty Holdings Inc. (NYSE:

SBH

), Michael Kors Holdings Ltd. (NYSE:

KORS

), Kate Spade & Co. (NYSE:

KATE

) and Restoration Hardware Holdings Inc. (NYSE:

). Chen said he's "fundamentally positive" on retail, given conservative inventory controls by managers and "a relative rationalization of promotions" as well as low gasoline prices and prospects for higher consumer spending. Chen said Wall Street had expected 2015 earnings growth for the sector on average of 10 percent, versus recent company guidance that has averaged 5 percent. "It creates opportunities for companies to beat," Chen said. Included in the newly lower consensus is "greater clarity" in the impact of a stronger dollar, which Chen said is now "baked in" to current share prices.

RHRH

$148.741.44%

Overview

SBHSally Beauty Holdings Inc

$12.684.97%

TGTTarget Corp

$122.930.29%

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