3 Big Box Retailers with High-Quality Ratings to Buy in 2022
The retail industry has been accelerating of late, driven by a surge in demand, increased consumer spending, and accelerated digital transformation despite worries about geopolitical strife between Russia and Ukraine...
The retail industry has been accelerating of late, driven by a surge in demand, increased consumer spending, and accelerated digital transformation despite worries about geopolitical strife between Russia and Ukraine and the Fed's hawkish tilt. Thus, we think it may be profitable to invest in fundamentally sound retail companies Walmart (WMT), Lowe's (LOW), and Target (TGT). These companies have a Quality grade of B in our proprietary rating system. Read on.
The retail industry survived the COVID-19 pandemic thanks to its rapid adoption of digital sales channels amid lockdowns and social distancing restrictions imposed by governments worldwide. Retail companies have been restructuring their supply chains and reinventing their physical stores over the past two years to comport with the digital age.
Skyrocketing inflation rates and escalating Russia-Ukraine tensions caused consumer confidence to plummet early last month, after rebounding in January. However, consumer confidence rose by 1.8% in late February. As a strong labor market further boosts consumer confidence, big-box retailers are expected to generate increasing revenue and earnings growth in the near term.
Given this backdrop, we think investing in profitable retail stocks Walmart Inc. (WMT), Lowe's Companies, Inc. (LOW), and Target Corporation (TGT) could be wise. These stocks have a B grade for Quality in our proprietary POWR Ratings system.
Walmart Inc. (WMT)
Bentonville, Ark.-based WMT engages in retail, wholesale and other businesses located throughout the U.S., Africa, Canada, Chile, China, India, and Mexico. The company operates in three segments: Walmart U.S., Walmart International, and Sam's Club. WMT operates supermarkets, hypermarkets, supercenters, warehouse clubs, discount stores, and e-commerce websites, such as walmart.com, walmart.com.mx, walmart.ca, and samsclub.com.
Today, WMT relaunched the Walmart2Walmart Mexico program, powered by Ria Money Transfer. The program allows customers to send money to Mexico at a low price. This reflects WMT's commitment to providing customers with inclusive and affordable financial solutions.
Last month, WMT raised its annual dividend to $2.24 per share. This marks an increase of 2% from the $2.20 per share dividend paid in its last fiscal year. The dividend increase reflects the company's strong financials.
In its fiscal year 2022 fourth quarter, ended Jan. 31, 2022, WMT's total revenues increased marginally year-over-year to $152.87 billion. Its adjusted operating income grew 6.2% year-over-year to $6.01 billion. And its consolidated net income grew 280.9% year-over-year to $3.63 billion. Its consolidated net income attributable to Walmart rose 270.3% from the same period last year to $3.56 million. And the company's adjusted earnings per share increased 10.1% from its year-ago value to $1.53.
WMT's 16.7% trailing-12-month ROE is 25.9% higher than the 13.2% industry average. Also, WMT's 5.6% trailing-12-month ROA is 14.5% higher than the 4.9% industry average.
The $138.10 billion consensus revenue estimate for its fiscal 2023 first quarter, ending April 2022 represents marginal year-over-year growth from the same period in 2021. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.
WMT stock has increased 6.8% in price over the past year and closed yesterday's trading session at $136.00.
WMT's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WMT has a B grade for Growth, Value, Quality, and Stability. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #10 of 39 stocks.
To see additional component grades of POWR Ratings (Sentiment and Momentum) for WMT, click here.
Lowe's Companies, Inc. (LOW)
LOW is a home improvement retailer in the U.S. and internationally. It offers home improvement products, installation services, extended protection plans, and repair services. The Mooresville, N.C. company offers a wide range of products for construction, maintenance, repair, remodeling, and decorating and serves homeowners, renters, and professional customers.
On Feb. 3, 2022, LOW launched a new exclusive home décor brand, Origin 21, which delivers an approachable and modern design for everyday living. The collection includes throw pillows, rugs, patio furniture, faucets, faux plants, and more. This launch is expected to expand LOW's customer base and boost revenue streams.
LOW's net sales increased 5.1% year-over-year to $21.34 billion in its fiscal 2022 fourth quarter, ended Jan.28, 2022. LOW's gross margin grew 8.8% year-over-year to $7.03 billion. The company's operating income rose 21.3% year-over-year to $1.85 billion. LOW's net earnings grew 23.3% year-over-year to $1.21 billion, and its earnings per common share improved 34.8% year-over-year to $1.78.
LOW's 12.6% trailing-12-month EBIT margin is 34.2% higher than the 9.4% industry average. And the stock's 18.9% trailing-12-month ROA is 209.3% higher than the 6.1% industry average.
Analysts expect LOW's revenue for its fiscal year 2023, ending Jan. 31, 2023, to come in at $98.45 billion, representing a marginal rise year-over-year. The Street expects the company's EPS to be $13.47 for its fiscal year 2023, representing an 11.9% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the four trailing quarters.
Shares of LOW have increased 48.7% in price over the past year. It closed yesterday's trading session at $228.66.
LOW has an overall B rating, which translates to Buy in our proprietary rating system. The stock has a B grade for Quality and Sentiment. Among the 62 stocks in the Home Improvement & Goods industry, it is ranked #12.
Click here to see the additional POWR Ratings for Momentum, Growth, Value, and Stability for LOW.
Target Corporation (TGT)
TGT in Minneapolis, Minn., is a merchandise retailer in the U.S. The company provides food assortments, beauty, household essentials, and other merchandise. TGT sells its products through its stores and digital channels such as Target.com. It operates more than 1,897 stores.
On March 1, 2022, TGT announced investments of $5 billion in its physical stores, digital experiences, and supply chain capacity to scale its operations in 2022. These investments might drive the company's sales and continued growth.
In its fiscal year 2022 fourth quarter, ended Jan. 29, 2022, TGT's total revenue increased 9.4% year-over-year to $30.99 billion. TGT's operating income rose 14.1% year-over-year to $2.10 billion. Its earnings before income taxes grew 16.6% year-over-year to come at $2.02 billion. The company's net earnings increased 11.9% from its year-ago value to $1.54 billion, and its adjusted earnings per share rose 19.2% from the year-ago value to $3.19.
TGT's 51% trailing-12-month ROE is 187.9% higher than the 17.7% industry average. Its 12.9% trailing-12-month ROA is 111.1% higher than the 6.1% industry average. TGT's 3.3% trailing-12-month CAPEX/Sales is 33.7% higher than the 2.5% industry average.
The $24.3 billion consensus revenue estimate for its fiscal year 2023 first quarter, ending April 31, 2022, represents a marginal year-over-year growth from the same period in 2021. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.
The stock has gained 32.4% in price over the past year and closed yesterday's trading session at $224.90.
TGT's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has a grade of B for Quality, Growth, and Value. Within the Grocery/Big Box Retailers industry, it is ranked #14 of 39 stocks.
To see additional POWR Ratings (Stability, Momentum, and Sentiment) for TGT, click here.
WMT shares were trading at $138.73 per share on Thursday morning, up $2.57 (+1.89%). Year-to-date, WMT has declined -4.12%, versus a -8.09% 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: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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