Buy these 14 stocks set to go into overdrive as consumers' stimulus checks arrive in March, Cowen & Co says

  • The unprecedented $1.9 trillion stimulus package will support massive consumer acceleration, says investment bank Cowen.
  • Insider breaks down the 3 key drivers for consumer acceleration, according to Cowen analysts.
  • And list the 14 consumer-focused stocks set to benefit from the stimulus checks.
  • Visit the Business section of Insider for more stories.

Democrats are hoping to send the $1.9 trillion American rescue package to the Senate next week and to President Joe Biden by March 12 said House Majority Leader Steny Hoyer in a press call.

The bill includes $1,400 stimulus checks, $400 federal unemployment benefits, and aid to state and local governments.

The unprecedented $1.9 trillion stimulus package supports massive consumer acceleration, according to investment bank Cowen in a February 16 research note.

The program helps setup a macro environment that is bullish for the consumer, Cowen analyst John Kernan said in the note. 

“Consumer confidence in September 2020 made its biggest month-over-month gain since 2000 but has since contracted as COVID-19 cases domestically have rebounded from late-2020 lows,” Kernan said. “We believe this will revert higher as COVID-19 cases wane over the coming months.”

The analysts list three key drivers for consumer acceleration supported by the stimulus package:

1) $1,400 direct payments expected around mid March

2) Monthly payments to families with children starting in July

3) Unemployment insurance increases to $400 and extends until the end of August

“While the long-term broader effects of this fiscal policy on inflation, interest rates, currencies and taxes are unclear – the low-end consumer will receive a tremendous boost in 2021 (we note disposable income grew 17% in April of 2020 as stimulus flowed),” said Cowen analyst, John Kernan.

The stimulus package will be a tailwind for disposable income benefiting the already healthy and accelerating US consumer, but also the middle to lower income consumers, Kernan said.

The firm’s monthly consumer tracker survey of 2,500 US adult consumers shows a significant acceleration in food stamp/EBT usage in 2020, following three years of flat, to declining, incidence. 

“The pandemic and high unemployment have given rise to heightened food insecurity among the US population, and are likely driving factors behind this increased usage in 2020,” Kernan said.

Although the impact of stimulus is uncertain in the long-term in relation to inflation, interest rates and tax implications, Kernan and his team are expecting a tremendous boost for the low-end consumer, which will likely benefit discount retailers and the tobacco, beer and cannabis sectors.

More broadly, the team sees beneficiaries in the sporting goods, big box retail and restaurant sectors.

We list the 14 stocks set to be direct beneficiaries of the new stimulus with most upside to consensus expectations with the potential for valuation expansion.

1. Footlocker

Ticker: FL

Price target: $66.00

Price target upside (as of note publication): 26%

Analyst commentary: “FL valuation appears too cheap given the stake in GOAT and consensus estimates that are too low.”

Source: Cowen 

2. Dicks Sporting Goods

Ticker: DKS

Price target: $87.00

Price target upside (as of note publication): 16%

Analyst commentary: “Dick’s (DKS, $74.98) has made significant investments in curbside pick, data analytics and DCs to support e-commerce and other omni-channel initiatives, which continue to bear fruit and are underestimated by consensus.”

Source: Cowen 

3. TJX Companies

Ticker: TJX

Price target: $76.00

Price target upside (as of note publication): 12%

Analyst commentary: “The macro set-up for the consumer is bullish, particularly at the low end, with the potential magnitude of increases in Personal Consumption Expenditure in supporting massive consumer acceleration. This is reinforced by $1.9T Fiscal Stimulus and mean reversion in savings and non-farm payrolls. While the long-term broader effects of this Fiscal policy on inflation, interest rates currencies and taxes are unclear -the low-end consumer will be receiving a tremendous boost in 2021. Among our coverage, we think the TJX, ROST and BURL could be positioned to benefit from this boost given the off-price channel’s higher exposure to low-and-middle income consumers and higher cross-shopping characteristics among EBT users.”

Source: Cowen

4. Ross Stores Inc

Ticker: ROST

Price target: $137.00

Price target upside (as of note publication): 15%

Analyst commentary: “The macro set-up for the consumer is bullish, particularly at the low end, with the potential magnitude of increases in Personal Consumption Expenditure in supporting massive consumer acceleration. This is reinforced by $1.9T Fiscal Stimulus and mean reversion in savings and non-farm payrolls. While the long-term broader effects of this Fiscal policy on inflation, interest rates currencies and taxes are unclear -the low-end consumer will be receiving a tremendous boost in 2021. Among our coverage, we think the TJX, ROST and BURL could be positioned to benefit from this boost given the off-price channel’s higher exposure to low-and-middle income consumers and higher cross-shopping characteristics among EBT users.”

Source: Cowen

5. Burlington Stores

Ticker: BURL

Price target: $264.00

Price target upside (as of note publication): 0.5%

Analyst commentary: “The macro set-up for the consumer is bullish, particularly at the low end, with the potential magnitude of increases in Personal Consumption Expenditure in supporting massive consumer acceleration. This is reinforced by $1.9T fiscal stimulus and mean reversion in savings and non-farm payrolls. While the long-term broader effects of this fiscal policy on inflation, interest rates currencies and taxes are unclear -the low-end consumer will be receiving a tremendous boost in 2021. Among our coverage, we think the TJX, ROST and BURL could be positioned to benefit from this boost given the off-price channel’s higher exposure to low-and-middle income consumers and higher cross-shopping characteristics among EBT users.”

Source: Cowen 

6.

Ticker: WMT

Price target: $170.00

Price target upside (as of note publication): 18%

Analyst commentary: “Meanwhile, we expect both outperform rated WMT and TGT will once again see a substantial benefit from additional stimulus. Both saw meaningful tailwinds to comps last spring, and we expect will once again be relative winners, and take outsized share of wallet.”

Source: Cowen 

7.

Ticker: TGT

Price target: $230

Price target upside (as of note publication): 20%

Analyst commentary: “Meanwhile, we expect both outperform-rated WMT and TGT will once again see a substantial benefit from additional stimulus. Both saw meaningful tailwinds to comps last spring, and we expect will once again be relative winners, and take outsized share of wallet.”

Source: Cowen 

8. Tapestry

Ticker: TPR

Price target: $42

Price target upside (as of note publication): 9%

Analyst commentary: “We believe outlet, logo, e-comm features, store pruning, and new product innovation can drive continued momentum. Recall in 2Q, TPR acquired >1.5mn new customers, ~50% of holiday sales were digital, and handbag average unit prices grew +15% y/y globally.”

Source: Cowen 

9. Boot Barn Holdings

Ticker: BOOT

Price target: $68.00

Price target upside (as of note publication): 12%

Analyst commentary: “Boot Barn is also well positioned to benefit from another round of stimulus. Recall, in January trends significantly inflected as comps accelerated to +17%, including +20% in physical stores from+6% (stores +3%) in December.”

Source: Cowen 

10. Constellation Brands

Ticker: STZ

Price target: $275

Price target upside (as of note publication): 14%

Analyst commentary: “Incremental discretionary income on top of an improvement in overall production levels should bode well for outperform-rated Constellation Brands (STZ; CP:$241.27) where sales growth is currently running at its highest levels in measured channels since mid-June.”

Source: Cowen

11. Green Thumb Industries

Ticker: GTBIF

Price target: $30

Price target downside (as of note publication): -17%

Analyst commentary: “Lastly, for cannabis, past month incidence rates are highest among the under $50k cohort, which would also be a benefit to outperform-rated Green Thumb Industries (GTBIF;CP: $36.44) and Curaleaf (CURLF; CP: $16.87).”

Source: Cowen 

12. Curaleaf

Ticker: CURLF

Price target: $15

Price target downside (as of note publication): -11%

Analyst commentary: “Lastly, for cannabis, past month incidence rates are highest among the under $50k cohort, which would also be a benefit to Outperform rated Green Thumb Industries (GTBIF;CP: $36.44) and Curaleaf (CURLF; CP: $16.87).”

Source: Cowen 

13. Chipotle Mexican Grill

Ticker: CMG

Price target: $1,900

Price target upside (as of note publication): 24%

Analyst commentary: “While this will likely be a boon for the industry, this is “more positive” for company operated models that are domestic focused, given the operating leverage in the business models.We highlight outperform-rated Chipotle (CMG, $1,527.70) and Starbucks (SBUX, $105.30) that should benefit from trade up.”

Source: Cowen 

14. Starbucks

Ticker: SBUX

Price target: $112

Price target upside (as of note publication): 6%

Analyst commentary: “While this will likely be a boon for the industry, this is “more positive” for company operated models that are domestic focused, given the operating leverage in the business models.We highlight outperform-rated Chipotle (CMG, $1,527.70) and Starbucks (SBUX, $105.30) that should benefit from trade up.”

Source: Cowen 

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