3 Retail Stocks to Buy After Raising Forecasts
A rapid rollout of COVID-19 vaccines and rising consumer spending are projected to drive the growth of the retail industry. With schools reopening thi...
A rapid rollout of COVID-19 vaccines and rising consumer spending are projected to drive the growth of the retail industry. With schools reopening this fall and more people engaging in outdoor activities, retail industry giants Walmart (WMT), Target (TGT), and Kohl’s (KSS) have raised their sales forecasts. Therefore, we think the shares of these companies could be great bets now. Read on.
Most retailers have strengthened their online presence and delivery networks to capitalize on the remote lifestyle triggered by the COVID-19 pandemic. Furthermore, with the vaccination rollout in full swing and more people engaging in outdoor activities, brick-and-mortar retail stores have been witnessing increasing foot traffic of late.
Even though the COVID-19 Delta variant threatens to delay economic recovery, stimulus packages and advance child tax credits from the Biden administration are expected to boost retail sales in the coming months. Furthermore, with schools reopening this fall, the retail industry expects total back-to-school spending to cross $100 billion and rise 6.4% year-over-year.
So, as shoppers head back to brick-and-mortar stores, major retailers Walmart Inc. (WMT), Target Corporation (TGT), and Kohl’s Corporation (KSS) have raised their sales forecasts, and we think these stocks are well-positioned to deliver significant upside in the near term.
Walmart Inc. (WMT)
WMT operates retail, wholesale, e-commerce, and other businesses worldwide, providing a wide range of products and services at everyday low prices (EDLP). Walmart U.S.; Walmart International; and Sam's Club are the three operational segments of the company. In addition, money orders, prepaid cards, money transfers, check cashing, and bill payment are among the other products and services that the company offers. WMT is based in Bentonville, Ark.
This month, WMT launched f Walmart GoLocal, a new line of business that extends the company's experience in delivering items to customers to businesses of all sizes. According to the company, Walmart GoLocal is based on its proven ability to execute delivery capabilities at scale efficiently, and it should further assist in strengthening the company’s existing delivery network.
Also this month, WMT chose Publicis Groupe to handle its media planning and procurement in the United States. WMT hopes to expand its capabilities and further engage with customers more compellingly and innovatively through this move.
During the second quarter, ended July 31, 2021, WMT’s total revenue increased 2.4% year-over-year to $141.05 billion. Its operating income rose 21.4% from its year-ago value to $7.35 billion. Also, the company’s cash and cash equivalent rose 28.7% year-over-year to $22.83 billion.
A $6.02 consensus EPS estimate for the current year represents a 9.9% improvement year-over-year. Analysts expect WMT's revenue to increase 2.5% year-over-year to $568.48 billion in its fiscal year 2023. The stock has gained 12.7% in price over the past year and 13.4% over the past six months.
WMT’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WMT is also rated an A for Stability and Sentiment, and a B for Value and Quality. Additionally, within the A-rated Grocery/Big Box Retailers industry, it is ranked #6 of 40 stocks.
To see additional POWR Ratings for Growth and Momentum for WMT, click here.
Target Corporation (TGT)
Minneapolis, Minn.-based TGT is a leading general merchandise store. The company offers a wide range of products and services, including food assortments, clothes, accessories, home decor goods, electronics, toys, seasonal offerings, and other merchandise. It operated 1,897 shops as of January 30, 2021.
This month, TGT announced the return of Bullseye's Top Toys, which it plans to expand to more than 160 Disney Stores in Target locations nationwide. Because its partnership with Walt Disney Co. (DIS) continues to be a major hit, the company intends to provide more guests with the opportunity to enjoy its unique in-store experience.
TGT announced The Fall Designer Collection this month. It features four limited-time-only design partners: Rachel Comey, Victor Glemaud, Sandy Liang, and Nili Lotan. The collection includes more than 180 modern and traditional fall wardrobe essentials, representing each designer's signature aesthetic.
TGT’s total revenue increased 9.5% year-over-year to $25.16 billion in its second fiscal quarter, ended July 31, 2021. Its operating income grew 7.2% from its year-ago value to $2.47 billion. The company's net income increased 7.4% year-over-year to $1.82 million, while its EPS surged 8.9% from the prior-year quarter to $3.65 over this period.
The company’s EPS is expected to grow 31.6% year-over-year to $12.4 in its fiscal year 2021. Analysts expect TGT’s revenue to increase 9.1% year-over-year to $102.08 billion in the current year. The stock has gained 63% in price over the past year and 41% so far this year.
TGT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. TGT also has a B grade for Value, Sentiment, and Quality. The stock is ranked #1 of 40 stocks in the Grocery/Big Box Retailers industry.
Beyond the POWR Ratings grades I have just highlighted, you can see the TGT ratings for Growth, Stability, and Momentum.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in TGT for a 65% gain. Learn more about the RTR service here.
Kohl’s Corporation (KSS)
KSS offers branded apparel, footwear, accessories, beauty, and home products through its stores and website. The Menomonee Falls, Wis., company sells its products primarily under the brand names of Apt. 9; Croft & Barrow; Jumping Beans; SO; Sonoma Goods for Life; Food Network; LC Lauren Conrad; and Simply Vera Vera Wang.
For the second quarter ended July 31, 2021, KSS’ total revenue increased 30.5% year-over-year to $4.45 billion. Its operating income grew 383.1% from its year-ago value to $570 million, while its net income surged 712.8% from the prior-year period to $382 million. In addition, the company’s EPS increased 726.7% from the year-ago value to $2.48.
A $4.35 consensus EPS estimate for the current year represents a 284.3% increase year-over-year. The $18.25 billion consensus revenue estimate for the current year represents a 21.4% increase from the same period last year. The stock has gained 9.6% in price over the past six months.
KSS' POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. KSS also has an A grade for Growth, Value, and Quality. Within the A-rated Fashion & Luxury industry, it is ranked #13 of 64 stocks.
Click here to see additional POWR Ratings for Sentiment, Momentum, and Stability for KSS.
WMT shares were trading at $146.85 per share on Friday afternoon, down $0.50 (-0.34%). Year-to-date, WMT has gained 3.08%, versus a 21.12% rise in the benchmark S&P 500 index during the same period.
Walmart (WMT) is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.