Top consumer names to own in 2024, according to Telsey Advisory

The December 13 Fed decision was highlighted by a pivot to a more dovish tone, whereby Chairman Powell had signaled that the FOMC is done raising rates and that the committee has marked up three rate cuts next year, says Telsey Advisory in its 2024 outlook research note. As such, Telsey analysts are turning “decidedly more constructive” with an eye on the consumer sector. While these stocks have been “on a tear” the past couple of weeks following the jolt from the Fed, Telsey believes that consumer companies will also take a more constructive approach to 2024, given the Fed commentary, a solid start to the holiday season, and the management teams’ ability to control costs.

RALPH LAUREN, BIRKENSTOCK TOP APPAREL AND FOOTWEAR PICKS: Telsey is positive on Ralph Lauren (RL) heading into 2024 as its Top Pick selection in apparel. The company, has reported better than expected sales and earnings in each of the last 13 quarters, and despite a still cautious outlook for the wholesale channel as well as ongoing macro headwinds, its continued outperformance is evidence of its success in being able to elevate the offering and attract younger and high-value demographic of new customers, the analysts write. In footwear, Telsey likes the recently IPO’d Birkenstock (BIRK) for its loyal customer base and opportunities for channel and category expansion, stating that the company should be able grow the addressable market, drive average selling prices, and pursue a stronger relationship with the consumer through DTC expansion opportunities. As part of the sector note, the firm is also raising its price target on Ralph Lauren to $165 from $155 and on Birkenstock to $56 from $47.

AMAZON CONTINUES GAINING MARKET SHARE: In Consumer Technology, Telsey believes that companies will continue to focus on profitability as sales normalize from the volatility of the post-COVID surge period and then the more mixed performance in 2023. Amazon.com (AMZN) is the firm’s Top Pick for 2024, as Telsey anticipates the company to leverage its loyal Prime customer base to expand into new retail categories such as grocery, pharmacy, and fashion. The firm maintains its Outperform rating and $165 price target on the online retail giant.

DOLLAR TREE, FIVE BELOW POSITIONED FOR EARNINGS GROWTH: In its screen for discounters that are implementing new strategic initiatives and seeking to bolster omnichannel capabilities, Telsey sees Dollar Tree (DLTR) as a stand-out. The firm is forecasting the company to generate multi-year earnings growth thanks to a number of its management’s transformative initiatives such as the rollout of Dollar Tree Plus! Multi-price point items and new frozen products assortment. Along with Dollar Tree, Telsey’s Top Pick in the category include Five Below (FIVE) based on its new stores expansion plans, enhancement from operations, and Five Beyond contribution. The firm is raising its price target on Five Below to $235 from $220. In addition, Target (TGT) was also selected as Telsey’s Top Pick on expectation that the margin recovery story should continue to play out in 2024 as the company laps the pressure last year from elevated supply chain costs and heavy markdowns.

OFF-PRICE SEGMENT TO EXPAND SHARE: The off-price segment will continue to gain market share in 2024 at the expense of Department Stores as consumers across the spectrum who have been impacted by continued economic headwinds flock toward more value-oriented merchandise, Telsey states. Burlington (BURL) and TJX (TJX) are the firm’s Top Picks for 2024 in the group. The new five-year plan adds clarity to the Burlington model and shows its management’s ability to drive topline growth through new store openings and higher comps while margin expansion, Telsey states, maintaining its Outperform rating and $225 price target on the stock. The analysts also like TJX for its ability to attract shoppers across a wide span of incomes, adding that after a challenging year for the home business category, a rebound in home-related spending will serve as a tailwind.

BLACK RIFLE COFFEE AIMED AT DOUBLE-DIGIT GROWTH: Telsey anticipates “solid” growth rates across the Food Brands group thanks to lower inflation helping reduce input costs and improve profitability in addition to the company-specific initiatives around distribution and new product launches. The firm’s standout performer for 2024 is Black Rifle Coffee (BRCC), rated at Outperform with an $8 price target. Telsey is positive on Black Rifle’s ongoing improvement in profitability and solid sales growth of double-digits from the expansion of its coffee products to food, drug, and mass channels. The firm is also citing the growth of the company’s ready-to-drink beverages..

LAGGARDS TO WINNERS IN SPECIALTY RETAIL, BEAUTY: Specialty retailers benefitted from a normalization in the supply chain over 2023, with significant improvements to freight expense through the back half of the year supporting full-price selling and margin improvement for the group, Telsey analysts write. Looking ahead to 2024 however, the firm sees less benefit from freight as a tailwind to margins, particularly in the second half, noting that while the macro picture has improved, it expects consumers to “remain discerning”, with preference for stronger brands across categories. With that in mind, Telsey selects Bath & Body Works (BBWI) as its 2024 Top Pick, citing the company’s loyal customer base and strong purchase frequency. Analysts also note its “attractive valuation” in recommending Bath & Body Works at 11.5-times expected next-12-months earnings – below the stock’s historical average multiple of 14.8-times and the group average of 15.6-times. The firm is applying a similar screen of “laggards at a reasonable valuation” in selecting European Wax Center (EWCZ) as its 2024 Top Pick in the Beauty category. The company is operating from a position of strength in a large, attractive, and growing addressable market, Telsey stated, adding that EWCZ also offers long-term growth opportunity given its potential for future unit expansion.

ON HOLDING, ACADEMY SPORTS ROUND OUT 2024 SELECTIONS: Telsey concludes its 2024 Outlook sector note with Top Pick selections in the Sporting Goods category. Here the firm is most positive on On Holding (ONON) for its brand recognition potential. While Nike (NKE) should have a stronger year based on its cleaner inventory position, Telsey analysts believe that On will continue to outperform the industry in 2024 but also benefit from expansion into new fitness verticals and improving profitability as it gains scale. Among retailers, Telsey’s search criteria of a recovery story coupled with a low valuation arrives at Academy Sports & Outdoor (ASO). The firm contends that after seven quarters of negative comps, Academy is getting closer to seeing its comp inflect positively. Telsey also believes that the company should start to see a larger contribution from new store openings.