By Teresa Rivas

First-quarter earnings season is nearly over, but there are still a few big names left to report -- and they're not all called Nvidia.

Artificial intelligence grabs most of the headlines, but it isn't the backbone of the economy yet. Consumer spending still accounts for two-thirds of gross domestic product, and Americans have rarely felt gloomier about shopping--even as they continue to open their wallets. That makes retail earnings all the more relevant this quarter.

This set of results will be the first time that most major retailers report on consumer behavior since gasoline prices skyrocketed across the country in response to the Iran war. The price spike happened too recently for the quarterly data to reflect its impact, but investors will be alert for any management commentary and forecasts that address the affect on consumer behavior.

Those remarks may be tempered by the fact that tax refunds, which edged higher this year due to tax-code changes, have helped offset the surge in consumer energy costs for now. Nonetheless, executive's observations will still be valuable given how prices at the pump are just the latest in a long line of blows the consumer has had to deal with after years of inflation and wages that aren't keeping up.

Overall, higher-income consumers, bolstered by stock market gains, are still spending freely, while other cohorts are forced to pay a higher percentage of income for essentials, potentially not leaving much left for discretionary spending. That helps to explain why the latest data from the University of Michigan consumer poll showed confidence hovering near all-time lows, even worse than at the height of the Covid-19 pandemic or after the Sept. 11 terrorist attacks.

Given this backdrop, Jefferies analyst Corey Tarlowe reiterated his thesis that retailers that offer the best value will come out on top. He has raised his price targets on Ross Stores and Walmart ahead of earnings, while Ross and Target are his favorite stocks to own going into the reports.

With regard to Walmart, he notes that investors still might not fully appreciate "the structural margin expansion story from e-commerce and alternative revenue streams" that will continue in the longer term. While he concedes that the valuation looks rich, he reiterated a Buy rating on the shares and raised his price target by $5 to $150.

   Ross (also a   Barron's favorite ) is his top pick, even as expectations are already running high for the quarter. "We believe the Street still underestimates the sustainability of margin recovery," Tarlowe writes, adding $3 to his price target, to $245, and reiterating a Buy rating. He's also bullish on TJ Maxx owner TJX, the biggest off-price retailer that will also report results this week, and smaller Burlington Stores. 

After years of struggling, Target has been 2026's comeback story, helped in no small part by the fact that years of disappointing trends mean that comparisons are easy. Nonetheless, Tarlowe thinks that this isn't just a case of a company picking low-hanging fruit. "Target is among the top names to own in retail today where both sales and margins have upside at an undemanding valuation," he writes.

Still, those opinions aren't universal.

Target has rallied more than 25% year to date, and last week's selloff demonstrates that some investors worry that its progress won't be able to live up to the hype, at least in the near term. Still, sentiment appears to be shifting among analysts that its new management team can finally right the ship.

"We believe investors are skeptical and reluctant to believe the turnaround is real, setting up further upside in the shares," writes Quo Vadis Capital President John Zolidis.

By contrast, 22V Research's Jeff Jacobson worries that for all Walmart's success in recent years, it could take a post-earnings hit: "It already trades at a VERY rich multiple, and perhaps we could see a 'catch-up' trade lower to the other names that are also levered to the lower-end consumer that have done very poorly as of late (that also trade at much lower valuations)."

Yet even he isn't bearish in the long term, and others see little reason to question Walmart's ongoing dominance. "Broadly, we believe Walmart's focus on value and convenience, combined with strong execution, should drive profitable market share gains," Telsey Advisory Group analyst Joseph Feldman writes.

By the end of the week, the picture of the consumer may look a bit clearer, but perhaps the only guarantee is that, with the geopolitical situation in perpetual flux, investors will be left wishing they knew even more.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 18, 2026 13:41 ET (17:41 GMT)

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