If anything has grabbed the attention of investors, it has been the horrible pounding many top companies in the retail sector have taken, and for many of those companies the future looks dim as well. The reasons are well documented, with internet sales being the prime culprit, as purchases have soared in recent years. One thing is for sure, if you want to invest in the sector, you better stay with the proven winners.

In a series of new research reports from Jefferies, while staying cautious on most of the sector, they are also raising estimates on some of the top companies. The analysts are focused on the stronger areas of the retail sector like the discounters and home improvement, and while the estimate increases are not huge, they are far better than most of the industry.

Dollar Tree

This bargain retailer bounced off a triple bottom low in March and could be offering a very compelling entry point. Dollar Tree Inc. (NASDAQ: DLTR) is a leading operator of single-price point dollar stores under the Dollar Tree banner, along with multi-price points under the Deal$ banner, with over 13,800 locations in the United States and Canada. The company completed the purchase of competitor Family Dollar in 2015 to become the largest domestic dollar store retailer.

Jefferies is somewhat positive on the company and raised its comparable sales estimates to 2.0% from 1.5%. The analyst noted this in the research report:

Our total enterprise comp store sales increased to 1.5% from 1.2%. In addition to our national checks, our local Dollar Tree checks showed good sell through for seasonal items, which should be good for margins. Based on store level checks, it does not sound like there are any notable Family Dollar integration issues that are disrupting store operations in any way.

Jefferies rates the stock at Hold and has an $80 price target. The Wall Street consensus target is $89.43. The shares closed Thursday at $81.49.

Home Depot

This company remains the undisputed leader in the home improvement retail category. Home Depot Inc. (NYSE: HD) is the world’s largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.

Home Depot stores sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance and professional service programs to do-it-yourself (DIY), do-it-for-me (DIFM) and professional customers.

Jefferies, like many on Wall Street, remains very positive on the company as home improvement spending remains much stronger than most retail areas of spending. The firm raised the U.S. comparable same-store-sales outlook to 5.5% from 4.5%, and overall comparable sales to 5.2% from 4.2%. It also raised fiscal first-quarter earnings estimates. The report noted this:

We believe Home Depot continued to take share in the first quarter and it remains our preferred way to play the reversion to the mean in home improvement spending. The industry is lapping the toughest quarterly comparison of the year, led by a strong February last year. However, trends remain strong as quarter-to-date building materials, hardware and garden supply sales (according to government figures) have grown 6.4% year-over-year while lapping a 10.1% growth over the same time period last year.

Home Depot investors are paid a 2.28% dividend. The $182 Jefferies price target is well above the consensus price objective of $160.29. The shares close most recently at $156.20.

Wal-Mart

The giant retailer has done very well since bouncing off lows for the year in January. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates via retail websites, such as Walmart.com and SamsClub.com.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. With fiscal year 2016 revenue of $482.1 billion, Wal-Mart employs approximately 2.2 million associates worldwide.

The Jefferies analysts raised the same-store-sales numbers to 1.5% from 1.0%. They conducted some national field checks on the retail giant and said:

Several of the store managers we spoke to highlighted price investment in food and apparel. We are modelling modest gross margin decline as it continues to execute its price investment campaign. Pricing surveys included in this report showed a continued widening of gaps with key competitors. Food deflation should be less of a headwind and could shift to modest inflation in the second half of the year. Currency continues to be a headwind and could remain that way the next couple of quarters, given current levels.

Shareholders receive a 2.68% dividend. Jefferies rates the stock a Buy and raised the price target to $88. That compares with a consensus price objective of $74.90. Shares closed above that level Thursday at $76.13.

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Investing in retail has become a slippery slope, and companies that miss earnings or give poor guidance have been taken to the proverbial woodshed. Sticking with the big name players that are in the right areas of the sector makes the most sense for investors now.

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