Bank of America (BofA) on Friday returned to coverage of large-cap U.S. retailers, naming Costco and Walmart as preferred holdings and taking a more cautious stance on Target. The bank's analyst framed the calls around each retailer's positioning across income cohorts, pricing strategy, digital investments and margin outlook.
Costco
BofA restarted coverage of Costco with a Buy rating. The bank argued the warehouse operator is well positioned to remain a leader in a K-shaped economy, noting the chain's appeal to higher-income shoppers while continuing to attract value-oriented customers through industry-leading pricing. Costco's approach of reinvesting in lower prices and higher wages was cited as supportive of ongoing share gains as consumers search for the best pricing.
Membership economics are a core strength. Executive memberships comprise roughly half of Costco's total members but account for approximately 75% of membership revenue, a concentration BofA highlighted as favorable. The firm also flagged a modest slowdown in overall renewal rates, but viewed the demographic shift toward younger, more digitally engaged members as expanding Costco's longer-term opportunity.
At the same time, BofA identified Costco's e-commerce investments as the primary medium-term risk for the business, signaling that online execution will be an area to monitor relative to the company's brick-and-mortar advantages.
Walmart
Walmart was also reinstated at Buy. BofA emphasized the retailer's sustained market-share gains across income groups, saying Walmart is attracting upper-income consumers through faster delivery offerings while continuing to serve lower-income shoppers with everyday low pricing.
The analyst pointed to Walmart's sizeable digital business, valued at $150 billion and representing 21% of sales, which is growing at a two-year compound annual growth rate of 23%. BofA called Walmart's ecosystem the principal reason to own the stock, noting expected e-commerce profitability and incremental margins in the 10-15% range as drivers of earnings momentum over time.
Overall, the bank expects steady sales growth combined with an acceleration in profit growth from recent investments to drive further positive EPS revisions and gradual multiple expansion.
Target
Conversely, BofA reinstated coverage of Target with an Underperform rating. The bank cited a slower earnings recovery trajectory and ongoing pressure within discretionary categories as central concerns.
BofA warned that consensus assumptions for sustained positive comparable sales may be overly optimistic and suggested that margin investments made against muted comps could postpone EPS improvement. Target's apparel and home divisions, which together represent roughly 30% of sales, remain key to any recovery, while competition from off-price operators, Walmart and specialty retailers continues to intensify.
Implications
BofA's refreshed coverage emphasizes differential positions within the retail sector: membership-driven pricing and selective reinvestment at Costco; a broadening digital ecosystem and improving e-commerce profitability at Walmart; and category mix and competitive pressure weighing on Target's recovery.
Investors should monitor membership renewal trends at Costco, the trajectory of Walmart's digital margins and Target's apparel and home performance as near-term indicators of execution against these scenarios.