Wolfe Research upgrades Target to Top Pick, downgrades Home Depot and Five Below

Investing.com -- Wolfe Research reshuffled its U.S. retail coverage on Monday, upgrading Target to Outperform and selecting it as a top pick into year-end, while downgrading Home Depot and Five Below to Peer Perform.

Analyst Spencer Hanus said Target's turnaround "has a rhythm that we haven't seen in years," driven by store resets, improved execution and new leadership.

He raised Target’s 2026 EPS estimate to $8.48 and moved his 2027 estimate to $9.52, above the $8.95 consensus, with a price target of $160 based on mid-$9 EPS and a 17x multiple.

Hanus said new customer trends have accelerated to plus 4.1% over the last four weeks, against a 52-week trend of minus 8%, calling it "a significant directional improvement."

On Five Below, Hanus flagged early signs that the Dumpling product trend is losing momentum, with Google Trends data showing fading search interest and store checks indicating flat demand.

He modeled first-quarter 2027 same-store sales at minus 8% versus the consensus of minus 1.3%. "The story has shifted from better retail execution to trend timing," he wrote.

For Home Depot, Hanus cited the persistent lock-in effect in the housing market, ROIC dilution from large Pro segment acquisitions and rising rate risks as reasons to step to the sidelines.

He also downgraded the broader home improvement sector to Peer Perform, noting that real legislative action to unlock the housing market "would be a Mid-2027 event at the earliest." Wolfe said it continues to prefer Lowe's within the sector for more idiosyncratic upside.

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