Morgan Stanley cuts targets on retailers

(Reuters) - Retailers may have a challenging 2009 as sales at its domestic stores continue to fall and in the absence of a stimulus like this year's tax rebates, analysts at Morgan Stanley said, as they lowered their price targets and 2009 earnings estimates across the sector.

Morgan Stanley cut its 2009 earnings-per-share estimates by 3 percent, on average, and price targets by 8 percent.

Decline in home values, rising unemployment, higher food and fuel costs, and a reduction in the level of construction spending - all point toward continued pressure on retailers through the end of 2008, Morgan Stanley said in a note to clients.

"While we believe that around $15 billion of stimulus checks will make it into retail sales and may provide a modest boost to retailer earnings, the checks are insufficient to offset macro headwinds into 2009," Morgan Stanley said.

The stimulus will provide some relief in the second and third quarters, but will not follow through to 2009, it added.

The investment bank cut its 2009 earnings-per-share growth forecast to 12 percent from 16 percent for hardline and softline retailers on continued macroeconomic weakness, inflationary pressures and weak retail sales.

Morgan Stanley said its multivariate model, which predicts monthly retail sales in six months time, points toward a 0.8 percent growth in retail sales in November, a steep decrease from the 1.9 percent growth in May.

The investment bank, which remained "cautious" on softlines and hardlines, said it favored discounters, restaurants, and food and drug sectors across retail. Wal-Mart Stores Inc (WMT.N) is its favorite stock this year.

(Reporting by Neha Singh in Bangalore; Editing by Himani Sarkar)