It started kind of slow, but now that the full ramifications of the tax reform bill are being felt, not the least of which is more take-home pay for many workers, and that money is starting to find its way into the economy. While some may argue that wage growth is still stagnant, that may not be the case as we are getting very close to full employment. Plus, rising costs are leveling off, and that means consumers are even more likely to spend.

A new Jefferies research report focuses in on the companies that look to benefit from the surge in spending. They pointed to the top trends that could drive spending in the report:

Retail sales have faced a number of headwinds over the last several years, but with after tax incomes set to improve, healthcare spend as a percentage of personal consumption expenditures flattening, and consumer debt service ratios now sitting at close to the lowest levels in 40 years, there’s a good argument for better income translating to better retail sales going forward.

The Jefferies team focused on a wide variety of companies, but we screened for the pure retail plays as they should see the dollars flow directly to them.

Gap

This top retailer could be poised to benefit from the extra consumer spending. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix. The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.

Gap has had a solid run and Jefferies noted this in a past research report:

The company is well-positioned in the shifting retail landscape, as its e-commerce business is actually accretive and the company has already done the heavy lifting on omni-channel integration. They were among the first to market with find in store, reserve in store, ship from store, and order in store, and are amidst the rollout of the Buy online, pickup in-store or BOPIS, which should help drive even higher profitability online.

The company reported huge fourth-quarter results on Thursday after the close and also guided the rest of 2018 higher. This was the company’s fourth straight quarter of positive earnings surprises and the fifth consecutive sales beat.

Gap shareholders receive a 2.9% dividend. Jefferies has a $45 price target, and the Wall Street consensus target is $31.34. The stock closed Thursday at $31.70 but was almost 10% higher in Friday’s premarket.

Home Depot

This company remains the undisputed leader in the home improvement retail category and another solid stock to own when rates go higher. 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.

Shareholders receive a 2.29% dividend. The Jefferies price target for the shares is $223, and the consensus price objective is $212.74. The shares closed Thursday at $179.64.

Kohl’s

This top retailer has been on fire and just posted big numbers. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.

While retail chains have suffered from internet pressure, Kohl’s has held its own as consumers see the company as a solid discount retailer. In addition, Amazon is growing its partnership with the department store chain. Last summer, the two companies announced that Kohl’s would begin selling Amazon devices, such as the Echo and Fire tablets, at 10 of its stores. Kohl’s also will be accepting Amazon.com returns at certain U.S. locations.

Top Wall Street analysts think that the company is a share gainer as its initiatives to drive traffic appears to take hold and will benefit from peer store closings, new brand additions and omnichannel initiatives. Margins are on the upswing, driven by growth in regular priced sales, while cost savings and efforts to right size select boxes are also helping.

Investors receive a 3.51% dividend. The $100 Jefferies price target is well above the consensus target of $65.47. The stock closed on Thursday at $62.75.

Ulta Beauty

If there is any company to own in the retail sector, this may be the one. Ulta Beauty Inc. (NASDAQ: ULTA) is a holding company for the Ulta Beauty group of companies. The company offers cosmetics, fragrance, skin, hair care products and salon services. It offers approximately 20,000 products from over 500 beauty brands across all categories, including its own private label. The company also offers a full-service salon in every store, featuring hair, skin and brow services.

Ulta Beauty operates approximately 970 retail stores across 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. The company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes.

The analysts have stayed positive despite the roller-coaster ride this year, and noted this in past report:

We see a model with more bend in the cost curve following 3 years of hyper growth. Brand boutique investment has been a cost drag atop heavy infrastructure and corporate spend but we see a shift in 2018 where leverage starts to materialize in earnest as the cost curve bends faster than sales rates moderate.

Jefferies has set its price target at a stunning $300. The consensus price objective is $270.82, and shares closed Thursday at $200.71.

Zoe’s Kitchen

This company has been hit hard and could provide a solid value play for investors the rest of 2018. Zoe’s Kitchen Inc. (NYSE: ZOES) develops and operates fast-casual restaurants serving a menu of fresh, wholesome, Mediterranean-inspired dishes delivered with southern hospitality. Its menu offers meals made from scratch using produce, proteins and other ingredients, including its appetizers, soups, salads and kabobs. Its food, including both hot and cold items, is suited for catering to a range of business and social occasions.

The company serves dishes for various occasions, such as Guilt-Free Girls Night, Game Day Goodies, Shower Sensations and Kids’ Party Pack. As of December 26, 2016, it had operated 201 company-owned restaurants and three franchise restaurants in 20 states across the United States.

Jefferies loves the stock and noted this:

Over 50% of ZOES’ store base also falls within the top two quartiles of states with favorable tax climates, including Florida, Texas, Alabama and North Carolina, and the analyst suspects that additional cash in guests’ pocket s could drive incremental traffic and spend. Last year’s menu innovation has been received very well so far, strengthening brand equity, and more investments in menu, technology, and marketing should keep Zoe’s top of mind.

The Jefferies price target is $20. The consensus target is $14.56, and shares closed trading at $14.61 on Thursday.

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These five top companies should see increased business as the benefits of tax reform really start to show up in consumers’ wallets. In addition, last weeks unemployment reading was the lowest since 1969. With more Americans returning to work, that should also help push even more people through the doors.

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