Credit Suisse makes Nordstrom, Burlington top retail picks for 2017

Published Wed, Jan 18 20171:02 PM EST

Nordstrom is best positioned to capture a large share of online department store sales, according to analysts at Credit Suisse, who upgraded the stock to outperform from market perform on Wednesday. "Our analysis suggests eCommerce will generate the majority of sales and profit growth for the overall apparel industry over the next 10 years. With eCommerce penetration reaching 38% of total softlines sales by 2030, we believe investment in eCommerce is a baseline requirement for retailers looking to gain market share," equity analyst Christian Buss wrote in a research note. In the next 12 months, Credit Suisse predicts, shares of Nordstrom could trade as high as $58, a nearly 31 percent gain from Tuesday's close. "We continue to believe that Nordstrom is one of the best franchises in the retail sector, making appropriate investments in speed of execution, eCommerce, and brand access," Buss said. "We expect this to lead to outsized earnings growth relative to peers. We see the company as differentiated from other mall anchors due to its position not based on promotion as well as its ability to attract emerging brands and its outstanding customer service." Apart from e-commerce leaders, Credit Suisse says that stores that sell apparel at steep discounts are likely to do well over the next decade. "We believe that deep-value retail (the combination of Off Price and fast fashion retail) will grow from 20% of industry sales to well over 30%. In short, we are at (or even past) a tipping point for the traditional full-price mall environment, particularly in tier-two and tier-three locations," Buss wrote. Investors should turn to Burlington Stores to ride that trend. Credit Suisse upgraded the stock to outperform from market perform on Wednesday. Buss writes as his investment thesis: "Burlington is a self-help story in a fundamentally well positioned group, with levers to pull in more attractive merchandising, underpenetrated categories like home and 'FAB' (footwear, accessories, beauty). The company is also focused on speeding up the inventory turn and converting large store format stores to smaller ones, both of which we view as positive. We believe Burlington Stores has a large margin gap with peers, which the management team has been trying to converge closer to its peers." In the next 12 months, Credit Suisse predicts shares of Burlington could trade as high as $92, a nearly 10 percent gain from Tuesday's close. "We expect the number of productive retail centers to decline by at least 25% over the next 10 years. Store closures are inevitable, and delay will exacerbate ROIC [return on invested capital] declines as tier two and three locations become increasingly unprofitable," Buss said.

Craig F. Walker | The Denver Post | Getty Images

Nordstrom is best positioned to capture a large share of online department store sales, according to analysts at Credit Suisse, who upgraded the stock to outperform from market perform on Wednesday.

"Our analysis suggests eCommerce will generate the majority of sales and profit growth for the overall apparel industry over the next 10 years. With eCommerce penetration reaching 38% of total softlines sales by 2030, we believe investment in eCommerce is a baseline requirement for retailers looking to gain market share," equity analyst Christian Buss wrote in a research note.

In the next 12 months, Credit Suisse predicts, shares of Nordstrom could trade as high as $58, a nearly 31 percent gain from Tuesday's close.