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Morgan Stanley upgraded shares of Wayfair (NYSE:W) and Kroger (NYSE:KR) to Equal Weight from Underweight in a note to clients on Tuesday focused on Hardline, Broadline, and Food Retail stocks.
Analysts said “clashing” narratives of reversion, disinflation, and margin recapture should drive stock performance in 2023.
They raised Kroger’s price target to $46 from $44, explaining that Morgan Stanley expects a stable 2023 backdrop for Food at Home, with “moderating (albeit still positive) inflation and steady underlying demand, which should support positive IDs (~3%) for KR in-line with industry growth.”
“Some of our prior KR specific concerns are either improving (market share), less of a risk (gross margin), or are understood by the market (lapping elevated fuel profitability). The ongoing ACI merger review is another dynamic that likely limits stock downside as our analysis shows acquirer stocks tend to trade flat during deal review processes,” analysts wrote.
The firm’s price target on Wayfair was raised to $80 from $75. The analysts said the stock, at around $40 per share, “appears to be pricing in tepid long-term fundamentals,” while sentiment is bearish and short interest is high at over 20%.
“At this price, risk/reward is balanced, though the next move in the stock may be higher as we see more positive catalysts than negative ones,” the analysts continued. “The stock is trading near its lows, the worst of W’s post COVID top-line deceleration has likely occurred, and thus modest incremental positives or signs of stabilization may drive the stock higher.”
