The performance of Williams-Sonoma (WSM) during the COVID-19 crisis increases our confidence in management’s ability to drive sales with innovative products, improve operating efficiency, and generate cash, notes Chris Graja, an analyst with Argus Research.

Williams-Sonoma is a leading specialty retailer of products for the home. The San Francisco-based company operates 614 retail stores under the Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Rejuvenation nameplates.

While significant economic uncertainty remains, we believe that the COVID-19 crisis has caused investors to differentiate between companies like WSM, with business models that are well positioned for the future, and those that face significant challenges.

We are evaluating an increase in our financial strength recommendation to Medium-High, which would be the same level as Costco (COST), Walmart (WMT), Colgate (CL), and Target (TGT).

Our five-year earnings growth rate is 9%. There are several reasons that we expect WSM to keep growing. Most notable is that CEO Laura Alber and the company’s designers have shown that they can maintain their rare knack for building brands and product lines from scratch.

CFO Julie Whalen said recently that she expected the company to benefit from a strong housing market, the permanent adoption of “hybrid work,” the shift to online shopping, and the interest of younger investors in companies like WSM with strong corporate values and a focus on sustainability.

The company is selling unique merchandise and has excellent tools for analyzing e-commerce and developing marketing plans. It also has an improving supply chain and delivery network, and a good balance of physical stores and e-commerce.

Over the last five years, WSM has raised the dividend at a compound annual rate of 10.6%. WSM has raised the dividend three times during the pandemic and announced two new share-repurchase plans. The indicated dividend yield is approximately 1.7%. Our 12-month target price is $250.

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