Analyst Ratings Update on Retail Stocks

Investing.com — In separate notes Tuesday, analysts at Citi adjusted their ratings on two major retail stocks, Carter's Inc. (NYSE:CRI) and Ross Stores (NASDAQ:ROST), reflecting shifts in their respective business outlooks and potential challenges.

Carter's Inc. (NYSE:CRI)

Citi upgraded Carter's stock from Sell to Neutral, maintaining a target price of $50.

Analysts noted that much of the anticipated pressure on Carter's sales and margins for fiscal year 2025 is now “more baked in.” Despite struggles to retain market share within its U.S. direct-to-consumer (DTC) channel due to competition from lower-priced mass and online retailers, Carter's management has started to reinvest in pricing to drive DTC growth. However, this is likely to exert pressure on gross margins next year.

Despite these challenges, Carter's stock has dropped 20% since its Q3 earnings report on October 25 and is down 30% year-to-date. Analysts see a “more balanced risk/reward” now, with an adjusted earnings per share forecast of $4.86 for fiscal 2025, which is below the consensus of $5.09. The stock also offers a 5.8% dividend yield.

Ross Stores (NASDAQ:ROST)

Citi downgraded Ross Stores from Buy to Neutral due to uncertainties related to the ongoing management transition. With a new CEO coming from outside the off-price retail industry, the management shift introduces “increased uncertainty” to Ross's strategy and performance.

Combined with a relatively high valuation of 14x fiscal 2025 EBITDA, the bank no longer sees a favorable risk/reward profile for Ross. Citi revised its discounted cash flow-based target price from $179 to $152, reflecting “slightly lower estimates beyond F24” and a lower terminal multiple.

For Q3, Citi anticipates Ross to report an inline performance, though unfavorable weather in key markets like California and Florida may impact sales.