Meet the New Favorite (and Least Favorite) Goldman Sachs Retail Stock Pick

Retail

Published: December 3, 2014 1:35 pm

Last Updated: December 3, 2014 1:36 pm

Goldman Sachs has lowered its view on North American broadline retailers. However, there is a bright spot in this sector. The call was from Stephen Grambling and was after disappointing third-quarter results amidst a solid macroeconomic backdrop. The one obvious winner is going to be TJX Companies Inc. (NYSE: TJX).

Goldman Sachs raised TJX to Buy from Neutral and added the discount retailer to the firm’s prized Conviction Buy List in its retail segment call on Wednesday. TJX’s price target was raised to $77 from $71 in the call, compared to a prior close of $65.24. The consensus price target for TJX at Thomson Reuters is just above $66, which is right in line with the near-$66 share price as of Wednesday, against a 52-week range of $51.91 to $66.47.

Perhaps the biggest loser in the Goldman Sachs retail sector call was none other than J.C. Penney Co. Inc. (NYSE: JCP). The struggling department store owner and operator was downgraded to Sell from an already cautious Neutral rating. Goldman Sachs also put the retailer’s share price target down at $5.50 in the call. Grambling fears that the customer losses are likely to remain in place due to discounting and online shopping pressure. He also fears that store closures and potential strategic alternatives will neither unlock much value nor bring much downside protection for shareholders. That was good for a 3% drop in J.C. Penney shares to $7.15, and the consensus analyst price target is higher at $8.28. What Goldman Sachs fears at J.C. Penney is a more challenging backdrop working against its turnaround.

ALSO READ: RadioShack’s Stock Price Races Toward $0

TJX replaced Ross Stores Inc. (NASDAQ: ROST) on the Goldman Sachs Conviction Buy List, but the formal Goldman Sachs rating on Ross still remains Buy. The firm’s price target was raised to $99 from $96 in the call.

Burlington Stores Inc. (NYSE: BURL) was downgraded to Neutral from Buy in the same call. Still, the Goldman Sachs price target was raised to $46 from $43. Burlington’s consensus price target was last seen as almost $42.

A broader concern that Goldman Sachs brings up regarding the retail sector is a concern over valuations. The firm noted that valuations are in-line or above average on an absolute and relative basis compared to historical valuations. If the call was so strong for TJX, perhaps it would have been up more than just 0.8% to $65.75 in mid-afternoon trading on Wednesday.

The Average American Has No Idea How Much Money You Can Make Today (Sponsor)

The last few years made people forget how much banks and CD’s can pay. Meanwhile, interest rates have spiked and many can afford to pay you much more, but most are keeping yields low and hoping you won’t notice.

But there is good news. To win qualified customers, some accounts are paying almost 10x the national average! That’s an incredible way to keep your money safe and earn more at the same time. Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 3.80% with a Checking & Savings Account today Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.

Click here to see how much more you could be earning on your savings today. It takes just a few minutes to open an account to make your money work for you.

Our top pick for high yield savings accounts includes other benefits as well. You can earn up to 4.00% with a Checking & Savings Account from Sofi. Sign up and get up to $300 with direct deposit. No account fees. FDIC Insured.

¹https://www.fdic.gov/national-rates-and-rate-caps