Cost-conscious Americans are cutting back on spending, and that should give Walmart shares a boost, Jefferies said in a note on Friday. The Wall Street firm expects a potential slowdown in spending, particularly in non-essential categories, after its latest survey found that consumers plan to spend more on needs versus wants. There is also a strong tendency to deviate from brands. Some 87% of respondents are at least somewhat likely to switch to cheaper alternatives such as private labels. Jefferies surveyed more than 1,000 US consumers about their expected spending habits over the next 12 months. “Given this dynamic, we are increasingly bullish on WMT as it is a value leader in grocery with a strong private label offering and is currently investing in improving the economics of all orders and the customer experience,” wrote analyst Corey Tarlowe. WMT YTD mountain Walmart year to date There has been a broader shift toward private labels as inflation-weary consumers look to save money amid rising prices. Specifically, according to Numerator, canned vegetables, meat and cheeses have a higher share of private brands. Additionally, cat and dog food and treats are posting the strongest gains in private label dollar share, the firm found. Walmart store brands include Sam’s Choice and Great Value, the latter of which is the most popular private label brand, according to Numerator. This best-in-class assortment of private labels will help Walmart continue to do well in the grocery business, Tarlowe said. Its private label penetration is at a high 20%, and in the first quarter its penetration grew by 110 basis points year-over-year, he pointed out. It expects the penetration of its private labels to continue to grow. A basis point is 1/100 of a percentage point. Under Jefferies’ bull case, the deal could lift Walmart’s comparable sales to 6.5% in 2024, versus the consensus of 3.4%, and boost earnings per share to $6.50, versus the consensus of $6.24, Tarlowe said. Its price target of $175 represents a 15% increase from Thursday’s close. Separately, Morgan Stanley issued a research note on Thursday saying it, too, sees a potential improvement to Walmart’s fiscal 2024 estimates. “We like WMT as a hiding spot that also offers upside via possible margin bending at F’25 and beyond,” analyst Simeon Gutman wrote in a research note. — CNBC’s Michael Bloom contributed reporting.