Evercore ISI's Greg Melich: Here's why Walmart and Home Depot are top names in our portfolio

Retail Industry Overview - This week's earnings reports from Home Depot, Lowe's, Walmart, and Target are dominating the retail narrative [1] - The retail sector, valued at $5 trillion, requires segmented analysis across different categories like home improvement ($500 billion), grocery ($1 trillion), and auto parts ($150 billion) [16] - The ability of different consumer retail segments to manage tariff pressures will be a key learning point this week [16] Target Analysis - Evercore downgraded Target to sell on Friday but added a tactical outperform rating, anticipating a potential stock increase this week [2] - Target's stock has significantly underperformed this year, declining over 20% [2] - Despite sales potentially running negative by 2-3% in the quarter and into the summer, a further guidance reduction is deemed unlikely [2] Walmart Analysis - Walmart is favored, included in the top five portfolio alongside Home Depot [5] - Walmart is expected to report a strong second quarter but remain conservative in its full-year guidance [6] - Walmart's growth is driven by increased traffic and a new middle to higher-income consumer base, with Walmart Plus memberships reaching 18 million households, 75% of the year-over-year growth coming from higher-income households [6] Home Improvement Sector - Home Depot and Sherwin-Williams are favored within the home improvement sector due to their pricing power and ability to pass through costs on need-based products [17] - Home Depot's significant exposure to Pro (over half of sales) is a key differentiator compared to Lowe's (under 30%) [10] - Modest improvement to slight growth is expected in home improvement after a 2.5-3 year downturn [11] Economic Factors - Wage inflation in retail has decreased to 3-4%, and is not expected to decelerate significantly [8] - Retailers are reportedly still able to attract and retain necessary personnel [9] - Home improvement demand is predicted by an indicator at just positive 1%, with 30-year mortgage rates being more influential than HELOC rates [13]