Bank of America resumes coverage of Walmart, Target, and Costco: the most worthwhile stocks to hold

Investing.com - Bank of America (BofA) resumed coverage of the U.S. large retail sector on Friday, listing Walmart and Costco as top holdings, while maintaining a more bearish view on Target.

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BofA has upgraded Costco to a buy rating, believing this warehouse retailer is “well-positioned in the K-shaped economy and is expected to maintain its leadership.” Analyst Christopher Nardone stated in a report that the company can attract high-income shoppers while also appealing to value-conscious consumers through industry-leading pricing strategies.

He added that Costco reinvests funds into pricing and wage strategies, supporting its continued market share growth as consumers “seek the best prices.”

The key advantage remains its high membership—about half of total members but contributing approximately 75% of revenue. Nardone wrote, “We are monitoring a slight slowdown in overall membership renewal rates; nonetheless, shifting toward a younger, digitally savvy membership base broadens Costco’s long-term value opportunities.”

Meanwhile, e-commerce investments are identified as Costco’s primary medium-term risk.

In another report, Walmart was also reinstated with a buy rating, with BofA emphasizing its ongoing market share gains across all income groups. Nardone said Walmart “gains share among high-income consumers through faster delivery services while serving low-income consumers with everyday low prices.”

The analyst noted that Walmart’s digital business is valued at $150 billion, accounting for 21% of sales, with a two-year compound annual growth rate of 23%. He called this ecosystem a primary reason for holding the stock.

E-commerce profitability and incremental profit margins of 10-15% are expected to support profit growth over time.

Nardone stated, “We believe that sustained steady sales growth and recent investments leading to accelerated profit growth should result in further upward revisions to EPS estimates and a gradual increase in valuation multiples.”

On the other hand, BofA has resumed coverage of Target with an underperform rating, citing slow profit recovery paths and continued pressure on the discretionary goods category.

Nardone said the market’s consensus expectation of sustained positive comparable sales “may be overly optimistic,” warning that investing in profit margins amid sluggish comparable sales growth could delay EPS improvements.

Target’s apparel and home goods segments—about 30% of sales—continue to underperform and remain central to any recovery, with fierce competition from discount retailers, Walmart, and specialty retailers.

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