Top 3 Hardlines Retail Stocks to Watch, According to Wells Fargo

Investing.com -- The hardlines retail sector is facing uneven momentum as tariff inflation rises and late-quarter trends soften, yet valuations have turned more attractive.

Wells Fargo Securities’ latest update identifies O’Reilly Automotive, Tractor Supply, and Wayfair as its top picks heading into third-quarter earnings.

The brokerage cites resilient category demand, manageable expectations, and potential 2026 stimulus as key stabilizers in an otherwise mixed landscape

O’Reilly Automotive (ORLY) leads the pack, with Wells Fargo expects O’Reilly Automotive to post a stronger third quarter, calling recent “First Brands noise” a buying opportunity. 

The brokerage models a +5% same-store sales increase, 20 basis points ahead of Street consensus and consistent with continued share gains in both the professional (DIFM) and do-it-yourself (DIY) segments, up 9% and 1.5% respectively. 

Earnings before interest and taxes (EBIT) margin is forecast to expand 25 basis points to 20.8%, with earnings per share projected at $0.84, one cent above consensus. While gross margin is expected to remain largely flat at 51.6%, tariff-driven pricing is seen as the primary driver of sales growth. 

Wells Fargo’s report notes that O’Reilly’s inflation pricing stepped up to mid- to high-single digits in Q3, with another increase likely in Q4. 

The brokerage raised its price target to $115, citing manageable LIFO headwinds and steady volume performance despite tariff pressures.

Tractor Supply Company (TSCO) ranks second, despite shares falling 11% from August peaks amid slower late-quarter trends.

The brokerage models a +4.5% comparable sales increase, ahead of Street estimates of +3.3%, reflecting solid July performance offset by weaker September and early October trends due to weather and hurricane-related comparisons. 

Gross margin is expected to expand modestly by 15 basis points to 37.4%, while EBIT margin is projected to decline slightly to 9.1% amid higher SG&A costs. 

EPS is forecast at $0.48, in line with consensus.

Wells Fargo highlighted that pricing checks in September showed hard goods up 4.2% month over month and pet food prices rising 2% quarter over quarter, indicating ongoing category resilience. 

The analysts reaffirmed an “overweight” rating and a $65 price target, noting easier comparable bases and constructive positioning into 2026.

Wayfair (W) rounds out the top three, expected to extend its streak of quarterly sales outperformance. Wells Fargo models third-quarter revenue growth of 5.4% year over year, 100 basis points ahead of consensus.

Gross margin is projected to hold at 30.1%, while adjusted EBIT margin expands by 185 basis points. 

The brokerage estimates adjusted EBITDA margin at 5.3% and EPS at $0.41, roughly two cents below Street expectations. Analysts pointed to steady market share gains, effective promotional activity, and continued traction in initiatives such as supplier advertising and Castlegate logistics. 

Despite tariff-related noise and weaker September and October website traffic, the brokerage raised its price target to $90 from $84, emphasizing Wayfair’s relative strength amid modest category recovery and sustainable profitability progress.

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