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Mizuho launched coverage of 15 companies in the Consumer Hardlines and Consumer Internet verticals on Tuesday. The company has adopted an optimistic outlook for its 2024 budget due to the expectation of a stable spending environment. Top choices include Lowe’s (NYSE: LOW) within the main hardline and large cap consumer groups, Wayfair (NYSE:W) as part of our consumer Internet coverage and Mister Car Wash (NYSE:MCW) in small capitals.
Analyst David Bellinger pointed out that broader spending measures are strengthening, despite some pressure on consumers. Mizuho’s outlook incorporates a tepid retail spending environment characterized by low single-digit growth compared to the latest adjusted retail sales data for February of just +2.2% year-over-year.
“The fundamentals of healthy employment and real wage growth support our view, despite the cumulative effect of inflation on purchasing power and more discretionary spending areas,” Bellinger noted.
As for the Federal Reserve, Mizuho believes that consumer spending is strong enough that no immediate action by the Fed is warranted, but he also believes that investor expectations for rate cuts in 2025 serve as a positive factor to support a bullish position on home improvement retailers Home Depot (HD ) and Lowe’s (LOW).
Overall, Mizuho has taken a more selective risk appetite approach in its stock recommendations. Names with buy ratings included Home Depot (HD), Lowe’s (LOW), Wayfair (W), AutoZone (AZO), O’Reilly (ORLY), Five Below (FIVE), Mister Car Wash (MCW) and Valvoline ( VVV ). Top overall picks include Lowe’s (LOW) within major Consumer Hardlines and large caps, Wayfair (W) within Consumer Internet coverage, and Mister Car Wash (MCW) within small cap coverage. Meanwhile, Neutral ratings were given to Advance Auto Parts (AAP), CarMax (KMX), Floor & Decor (FND), Tractor Supply (TSCO), and Chewy (CHWY). The only stock that Mizuho started with a bearish view was Stitch Fix (SFIX). Bellinger and his team warned that the deterioration of SFIX’s customer base calls into question the long-term sustainability of the business model. The firm initiated coverage on SFIX with an Underperform rating.