Top Off-Price Retail Stocks as Freight Costs Rise: BofA

Investing.com -- Bank of America analysts maintain Buy ratings on leading off-price retailers despite cutting earnings estimates by 3-6% for fiscal 2027 to account for rising freight costs that will pressure margins as shipping contracts renew.

The bank worked with its Global Transport team to assess where rates could settle and incorporated 60 basis points of incremental freight pressure starting in the second quarter. While April rates will ultimately determine the magnitude of the headwind in the second quarter of 2027 and beyond, analysts say inflation is here to stay.

However, the estimate reductions do not change the firm’s positive view on off-price retail stocks, which are expected to outperform as inflation constrains consumer purchasing power.

1. Burlington Stores (BURL) - Bank of America’s top pick in the off-price sector received a 6% reduction to fiscal 2027 estimates, reflecting 60 basis points of incremental gross margin pressure from freight costs. Despite the downward revision, the firm reiterated its Buy rating and lowered its price objective in line with the estimate changes.

2. Ross Stores (ROST) - The retailer saw its fiscal 2027 estimates cut by 3% to account for higher freight expenses. Bank of America maintained its Buy rating on the stock, viewing the company as well-positioned to benefit from value-seeking consumer behavior in an inflationary environment.

3. TJX Companies (TJX) - Analysts reduced fiscal 2027 estimates for the off-price retailer by 3% due to anticipated margin pressure from elevated shipping costs. The firm reiterated its Buy rating intact, citing the company’s ability to capitalize on trade-down trends as consumers face higher prices for necessities and persistently elevated fuel prices.

Bank of America now models a 15% increase in domestic freight and an 80% increase in ocean freight. The bank notes this environment remains more benign than 2022, when higher rates pressured margins by 200-300 basis points.

The analysts expect off-price retailers to continue outperforming as higher prices for necessities leave consumers with less to spend on discretionary goods, reinforcing value-seeking behavior that benefits the sector.

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