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Cowen analysts said in a note to clients on Thursday that two of the firm’s Top Picks for 2023 are Costco (NASDAQ:COST) and Home Depot (NYSE:HD).
In the note focused on the retail industry, the analysts told investors they prefer Costco’s “selectively curated assortment, which continues to offer value to customers across the high and low ends.”
For Home Depot, they said the firm believes the company’s “improvements in the Pro supply chain are underappreciated, which could drive continued share gains in key markets.”
“Costco’s low price business model, curated ~3,500 SKU assortment, sticky membership model, net cash of $5.1bn, and consistent traffic will drive low teens EPS growth in FY23,” argues the analysts, who have a $650 price target on Costco.
Cowen sees near-term catalysts for the stock, such as strength in food and sundries, as Costco provides an inflation solution, value leadership, and increased potential for a special dividend in FY23.
On Home Depot, the analysts have a $379 price target on the stock. They stated: “In our view, Investors underappreciate structural benefits from HD’s Pro supply chain investments, which along with other key features of its ecosystem, should drive robust share growth in key markets and strengthen top- and bottom-line productivity.”
“We expect large Pro share growth will be led by the 30-35 markets with Flatbed DCs, which solve two key long-held stumbling blocks: better on-time delivery and greater Pro inventory. We are encouraged by green shoots with large Pro comps +DD in 3Q. Further, HD’s productivity continues to increase vs. LOW with U.S. sales/store ex. MRO +32% ahead, and we expect the margin gap to remain wide.”
