--- title: "Morgan Stanley Maintains 'Overweight' Rating on Four Major US Retail Stocks: Q3 Earnings Unlikely to Shift Bull-Bear Debate; 'Mediocrity' May Offer Strategic Entry Opportunity" type: "News" locale: "en" url: "https://longbridge.com/en/news/304813893.md" description: "On November 9, Morgan Stanley released a report maintaining an 'Overweight' rating on four major US retail stocks—Walmart, Home Depot, Lowes, and Target—and provided corresponding target prices. The firm believes that this quarter's earnings reports are unlikely to change the ongoing bull-bear debate. However, as market focus shifts to AI, retail stocks have been overlooked, and their 'mediocre' performance may provide a contrarian investment opportunity. Walmart's results are expected to meet expectations, Target may deliver surprises, and the home improvement sector presents opportunities at cyclical lows" datetime: "2026-11-09T07:21:03.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/304813893.md) - [en](https://longbridge.com/en/news/304813893.md) - [zh-HK](https://longbridge.com/zh-HK/news/304813893.md) generator: "portal-rs" --- # Morgan Stanley Maintains 'Overweight' Rating on Four Major US Retail Stocks: Q3 Earnings Unlikely to Shift Bull-Bear Debate; 'Mediocrity' May Offer Strategic Entry Opportunity According to Zhitong Finance APP, on November 9, Morgan Stanley released a preview of the third-quarter earnings for major US retail stocks, maintaining an 'Overweight' rating on Walmart (WMT.US), Home Depot (HD.US), Lowes (LOW.US), and Target (TGT.US). The target prices are $125, $400, $258, and $170, respectively. Morgan Stanley judges that this quarter's earnings are unlikely to substantially alter the investment thesis for each company: Walmart's performance is expected to meet forecasts; Home Depot and Lowes remain constrained by the absence of demand recovery; and Target is the only company potentially capable of delivering a 'surprise' performance. However, the report suggests that when market attention is entirely focused on AI and agent-based e-commerce, the 'lack of excitement' in retail stocks may itself be the starting point for contrarian positioning. **Why 'Mediocrity' Can Be a Bullish Case** Morgan Stanley points out that investor attention is firmly locked on AI, agent-based e-commerce, and the next big growth narrative, making the upcoming earnings season for major retailers appear quite 'old-school.' The resulting judgment is that this quarter will not bring incremental information sufficient to reshape the investment debate. Walmart continues to execute well but is striving to rebuild the narrative of 'dual growth in revenue and margins'; Target is poised to deliver encouraging same-store sales data but struggles to answer questions about profit transmission and its 2027 outlook; meanwhile, the home improvement sector is still waiting for a demand recovery that has arrived later than everyone expected. The focus of the report is not on 'whose quarterly earnings are the most impressive,' but rather on 'where the market may be underestimating upcoming changes.' In the home improvement sector, where earnings are at cyclical lows, catalysts are scarce, and expectations have been suppressed, contrarian opportunities are forming, although the widening performance gap between Home Depot and Lowes complicates this trade. **Walmart: Performance Meets Expectations, Valuation Largely Reflects Target Price** Morgan Stanley expects Walmart's fiscal 2027 Q3 results to broadly align with market consensus, with Q4 guidance continuing the existing outlook, pointing to a re-acceleration in adjusted operating profit growth. The company is scheduled to release its earnings before the market opens on November 19. Specifically, the company's US same-store sales are expected to grow by 2.9% (consistent with consensus), an increase from 2.6% in the second quarter. E-commerce continues to grow by over 20%, and Walmart Connect advertising revenue maintains a high growth rate of over 30%. Regarding the profit trajectory, adjusted operating profit growth hit bottom in Q3 (approximately 3% at constant exchange rates) and is set to re-accelerate in Q4. Approximately $600 million in price reductions in Q3 (corresponding to tariff refunds not utilized in Q2) dragged down growth by about 9 percentage points; excluding this impact, growth would be approximately 12%. On the cost side, diesel prices pose an annualized headwind of about $2.5 billion, but Morgan Stanley believes the company can hedge this through its own fleet and ocean freight capacity, maintaining its price advantage while adjusting prices. In terms of valuation, Walmart's current stock price corresponds to 40 times its earnings per share (EPS) for the next 12 months, which is higher than the average of the past decade. Morgan Stanley considers this premium reasonable, as Walmart's e-commerce business (including online retail, Walmart Connect advertising, and membership), supply chain capabilities, first-mover advantage in retail AI, and defensive attributes collectively support the valuation. However, the $125 target price is basically flat against the current price, implying that a 'good company' does not necessarily equal 'good returns'—there is essentially no room for further upside in this stock. **Home Depot and Lowes: Demand Stabilizes at Low Levels, But No Recovery in Sight** At the industry level, US home improvement retail sales grew by approximately 5% year-over-year from August to September, but Morgan Stanley notes that part of this was due to base effects. As mortgage rates rise, existing home sales have turned negative year-over-year, and large discretionary renovation projects continue to face pressure. Surveys of contractors also give similar signals: activity dominated by repairs and small projects has improved slightly, but conversion of transactions remains difficult, with improvements in order backlogs largely expected to wait until 2027. Home Depot's Q3 same-store sales are expected to grow by 1.5% to 2%, slightly below the market expectation of 1.7%; third-party card swipe data points to a 3.4% revenue increase. Management stated that the start of Q3 was consistent with Q2 demand, and Morgan Stanley's research confirms an increase in professional customer share, but warns against inferring an accelerated recovery from this—Q2 growth was still driven by average ticket size, while transaction volume declined. On the profit side, EPS is expected to be approximately $3.82, in line with the market, but gross margin is under pressure: $685 million in tariff refunds were recognized in Q2, effectively pulling forward earnings. In Q3, the company must simultaneously digest rising fuel and energy costs and acquisition dilution. With same-store growth below its historical operating leverage threshold of approximately 3%, this translates to only about 2% EPS growth. Home Depot is scheduled to release its earnings before the market opens on November 17. For Lowes, Morgan Stanley's expectations are slightly more optimistic: Q3 same-store sales are expected to grow by approximately 0.5%, higher than the market expectation of 0.1% and the company's 'roughly flat' guidance; card swipe data indicates an 8.5% revenue growth, higher than the consensus of 7.7%; EPS is approximately $2.95, slightly higher than the market and company-implied figure of about $2.85, but still down approximately 4% year-over-year. The real issue lies in next year: whether Lowes will provide preliminary 2027 guidance and update its three-year financial framework alongside the Q3 report. Morgan Stanley believes this preliminary guidance may fall short of market consensus, particularly with the possibility of declining EBIT margins; however, investors already anticipate downward revision space for 2027 forecasts, so the actual impact may be less severe than the numbers suggest. In comparison, the clarity of the long-term framework may be more important than short-term downward revisions, and the Investor Day on December 9 is expected to provide clearer answers on this front. **Target: The Only Company Potentially Delivering a 'Surprise' Performance** Among the four companies, Target is the only one marked by Morgan Stanley as having 'same-store sales that may exceed expectations.' Morgan Stanley expects both its Q3 same-store sales and EPS to exceed consensus: the market assumes same-store sales growth of 3.3%, which Morgan Stanley considers conservative—given market expectations for 5% to 6% same-store growth, achieving an EPS of $2.15 to $2.20 (consensus $2.06) is not difficult, supported by improved full-price sales from category resets and operating leverage from advertising revenue (which grew by approximately 40% in the first half). More noteworthy is the implied upward revision in full-year guidance: Morgan Stanley expects the company to set full-year sales growth at 6% and raise its adjusted EPS guidance to $8.50–$9.50 (previously $8.25–$9.25), corresponding to an EBIT margin expansion of approximately 60 basis points to 5.2%. In terms of valuation, Target has been re-rated within the year to a 2027 forecast P/E ratio of approximately 16 times (up from 12 times at the beginning of the year), which is still significantly lower than the sector average of approximately 40 times. Morgan Stanley's explanation is that the transformation is still in its early stages, and the sustainability of 2027 same-store sales and operating leverage remains questionable. Target is scheduled to release its earnings before the market opens on November 18. ### Related Stocks - [HD.US](https://longbridge.com/en/quote/HD.US.md) - [LOW.US](https://longbridge.com/en/quote/LOW.US.md) - [TGT.US](https://longbridge.com/en/quote/TGT.US.md) - [WMT.US](https://longbridge.com/en/quote/WMT.US.md) - [WMTI.US](https://longbridge.com/en/quote/WMTI.US.md) ## Related News & Research - [JP Morgan maintains Walmart at Overweight, raises price target to $145 from $125](https://longbridge.com/en/news/304904670.md) - [Is Target (TGT) Undervalued After Its Threshold Home Brand Refresh?](https://longbridge.com/en/news/304881283.md) - [Target vs. Walmart: Holiday marketing’s stakes feel higher this year](https://longbridge.com/en/news/305195123.md) - [What Could Lowe's (LOW) Gain From Reaching 8 Million Members Through One Deal?](https://longbridge.com/en/news/305207510.md) - [Target Offers A Robust Dividend. Here's An Option Trade To Boost It.](https://longbridge.com/en/news/305053039.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**