In a recent note to clients, analysts at Deutsche Bank highlighted two top second-quarter picks heading into their earnings releases.
The firm's analysts picked out beauty salon firm Ulta Beauty (NASDAQ:ULTA) and retail giant Walmart (NYSE:WMT), believing both will top consensus expectations. The firm sees WMT raising guidance, while ULTA is expected to reiterate its outlook when it reports earnings for its latest quarter.
The analysts maintained a Buy rating and $182 price target on Walmart, which is set to report earnings on August 17, noting its continued sales momentum, which is fueled by grocery share gains and upside from GLP-1. "While we acknowledge elevated investor expectations for WMT's 2Q results, we remain constructive on the shares as we see forecasts moving higher post results," wrote the analysts.
Despite WMT shares being down more than 1% Monday, Deutsche Bank believes it is operating at a very high level, and they think "2Q will provide evidence that it can sustain its momentum into 2H23 and beyond on market share gains, continued enhancements to Walmart+, and upgrades to the merchandising mix and stores."
Deutsche Bank highlighted ULTA's "large share price correction and likely cleaner set-up into results" as part of the reason they are positive on the stock. The firm maintained a Buy rating and $570 price target on ULTA, which is set to release earnings for its latest quarter on August 24.
"We remain constructive on ULTA, particularly following its recent sell-off, and see upside to 2Q SSS/EPS with a likely reiteration of the full-year guidance," said the analysts. ULTA shares are up almost 3% Monday. However, they have declined by over 10% in the last three months.
"At current levels, we don't think the market expects a guidance raise," said the analysts. "The shares have come under pressure, pulling back -9.5% since rebounding post 1Q results vs. the SPX +0.6%, and competitor/peer read-throughs remain favorable. We also don't see risk to 2Q gross margin as promotions appear well controlled and are likely in line with management's guidance," they concluded.
Wall Street analysts currently lean bullish on both ULTA and Walmart, with 21 assigning the beauty salon company a Buy rating, 12 a Hold rating, and one a Sell rating. For WMT, 37 analysts see the stock as a Buy, 13 as a Hold, and three as a Sell.