Analysts increasingly believe this retailer is the top holiday pick

Published Thu, Nov 30 202311:30 AM ESTUpdated Thu, Nov 30 202311:38 AM EST

Analysts on Wall Street think Five Below is the retail stock investors should be buying as the holiday shopping season picks up steam. The company reported third-quarter earnings of 26 cents per share on $736.4 million in revenue, while analysts polled by LSEG, formerly known as Refinitiv, forecast a profit of 24 cents per share and revenue of $727.5 million. Shares have added roughly 6% from the start of the year. FIVE YTD mountain Five Below stock. The report underpins a broader bullish trend for the retailer, analysts say, which is a more cost-sensitive consumer who is partial toward bargain hunting. Bank of America reiterated a buy rating on Five Below stock following the quarterly results, and slightly raised its target price to $233 per share from $230, which implies nearly 24% upside from Wednesday's $188.06 close. Analyst Jason Haas noted the popularity of Five Below could improve further as shoppers gear up for the Christmas holiday. "We believe that FIVE saw a strong Black Friday weekend and will see an acceleration in the weeks leading up to Christmas," Haas wrote in a Wednesday note. "With persistently high inflation, consumers are seeking out value and buying closer to need. FIVE becomes most needs-based during the holiday season and the rollout of Five Beyond (products $6-25) better positions it in the gift-giving category." Deutsche Bank also lauded the report, which analyst Krisztina Katai said "managed to check all the boxes for the bulls" due to a strong third-quarter print as well as exceptional fourth-quarter guidance. The analyst maintained a buy rating in a Wednesday note and raised her price target to $208 per share from $207, or about 11% upside moving forward. "All in, we think FIVE is well positioned to outperform in the current environment and will gain share behind several catalysts (e.g. tokenization initiative driving better merchandising marketing decisions)," Katai said. "Few retailers hold the attributes that FIVE does: 20%+ top- and bottom-line growth, driven by high-teens sq. ft. growth with ample white space, and promising top-line and margin initiatives." Elsewhere, Morgan Stanley's Simeon Gutman stood by an overweight rating on Five Below stock, and increased his price forecast to $225 from $210, implying about 20% upside. The analyst noted that the company's "top-line trends are among the most stable/healthy among discretionary retailers." He added, 2024 is "setting up as an 'algo' year with high teens EBIT/EPS growth." "With the stock trading below $200 and still pricing in more disruption from secular threats like Temu than we think is warranted, FIVE screens attractively as a scarce defensive, discretionary retailer with a best-in-class unit growth outlook," Gutman said. — CNBC's Michael Bloom contributed reporting.