The hardlines and leisure stocks to own in 2024, according to Piper Sandler

Looking to 2024, Piper Sandler is taking a balanced view to consumer spending and top picks in the Hardlines & Leisure space. The firm believes that while falling interest rates in the new year could be a substantial driver to many of the large-ticket home categories in the space, the rally over the last two months appears to already be pricing in some improvement and consumer spending is still shaky outside of key selling events. Piper names Dollar Tree (DLTR) as its favorite large cap, Wayfair (W) as its favorite mid cap and Mister Car Wash (MCW) as its favorite small cap.

2024 OUTLOOK: Discussing the Hardlines & Leisure outlook for 2024, Piper Sandler says it is taking a balanced view to consumer spending and top picks. On a more bullish note, falling interest rates in 2024 could be a substantial driver to many of the large-ticket home categories in our space. On the other hand, the rally over the last two months appears to already be pricing in some improvement and consumer spending is still shaky outside of key selling events, the firm notes. As a result, Piper favors companies with strong and distinctive drivers out to 2025 that rely less on a strong spending recovery.

FAVORITE STOCKS: The firm’s favorite large cap is Dollar Tree. With a turnaround story still in the early innings, Dollar Tree has a defensive sales model that can grow EPS regardless of economic backdrop, Piper argues. In the event of core grocery price deflation, core-Dollar Tree is well-set-up for gross margin expansion. Multiple sales drivers exist, margin expansion initiatives have yet to play out, and Family Dollar store rationalization could be material, the firm adds. Additionally, its 2024 EPS bridge suggests consensus may be too low. Piper raised its price target on the name to $171 from $160, while keeping an Overweight rating on the stock.

Overweight-rated Wayfair is the firm’s favorite mid cap for 2024. Piper notes U.S. sales growth is significantly outpacing that of the broader furniture industry, which remains depressed. Furniture demand is depressed and any flattening or improvement in furniture demand should yield over 10% sales growth for Wayfair. Flow through margins are quite attractive, allowing for potentially strong EBITDA growth over the next two years, Piper says, adding that consensus estimates for 2024 look too low.

Naming it the firm’s favorite small cap, Piper notes that Mister Car Wash’s new premium wash service, Titanium 360 is perhaps the most compelling new product/service launch in its coverage space in years. The firm sees T360 building to a 5% comp lift by the second half of 2024 and continuing for 2025. As a result, consensus estimates look too low, it argues. Separately, the car wash industry appears headed for a period of notable rationalization as unit growth slows. Finally, despite a slowing macro environment, Mister Car Wash’s subscription business has not seen any negative impact, so Piper expects it to hold up in 2024 as well.

OTHER NAMES PIPER LIKES FOR 2024: The firm also highlights several other Overweight-rated names it likes for 2024. Piper notes that both Best Buy (BBY) and Arhaus (ARHS) have exposure to big ticker spending but appear to be industries with abnormally depressed demand – which could turn positive for several years with interest rate cuts – yet still have reasonable valuations. The firm also highlights Ollie’s Bargain Outlet (OLLI) and Savers Value Village (SVV) as defensive growth names in the event of sluggish consumer spend, and Yeti (YETI) and Driven Brands (DRVN) as names with company specific drivers.