11:18 AM EDT, 08/26/2024 (MT Newswires) -- Consumer spending faded through the second quarter but shoppers are still making selective purchases focused on value and innovation, Truist Securities said Monday.

Card data tracked by the brokerage and latest quarterly earnings reports released so far in the space suggest that sales "have softened at the margin" but that consumers are still willing to spend, a group of Truist analysts, including Scot Ciccarelli, wrote in a note.

Home Depot ( HD ) and Lowe's (LOW), which are both rated as buy by Truist, lowered their full-year outlooks modestly, Ciccarelli said. Walmart ( WMT ) slightly raised its guidance while Target ( TGT ) posted its first positive comparable sales in five quarters against easy comparisons, with both suggesting that consumers are prioritizing value and/or innovation.

Truist suggests buying "defensive growth" companies in light of spending trends, such as buy-rated O'Reilly Automotive (ORLY) and Autozone ( AZO ) , as well as "deep value providers" such as buy-rated Costco (COST) and Ollie's Bargain Outlet (OLLI), or hold-rated Walmart ( WMT ).

Truist is expecting in-line sales for hold-rated Best Buy ( BBY ) and Five Below ( FIVE ) as well as "modest upside potential" to its model for Ollie's Bargain Outlet. Best Buy ( BBY ) appears to be in a "bottoming process" after more than two years of negative comparable sales as artificial intelligence drives an innovation-led upgrade cycle for laptops and mobile phones, the report showed.

Meanwhile, a weak exit to the second quarter and "what appears to be an even softer start" to the third quarter continue to represent risks to Five Below's ( FIVE ) top line, the analysts said. Ollie's, on the other hand, may be one of the few companies in Truist's coverage to achieve positive sales versus expectations, but they are tracking lower than the brokerage's mid-quarter read, according to the note.

The brokerage lowered its estimates on hold-rated Dollar General ( DG ) and cut its price target on the stock to $130 from $135. Truist's second-quarter comparable sales growth estimate for Dollar General ( DG ) was more-than-halved to 1% from 2.2% while its earnings per share projection was lowered to $1.76 from $1.88.

Markets widely expect the Federal Reserve to begin lowering interest rates in September. A more aggressive rate-cutting campaign, which Truist views as "increasingly likely given deteriorating macro trends," would likely shift the analysts' favor for more cyclical names, such as Home Depot ( HD ), Lowe's and Best Buy ( BBY ), they said.

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