The Fed’s aggressive rate hikes to battle the multi-decade high inflation have finally resulted in a slightly cooled price pressure. The Consumer Price Index (CPI) for October increased 0.4% sequentially and 7.7% from a year ago, lower than Dow Jones estimates of 0.6% and 7.9%, respectively. Additionally, Federal Reserve Vice Chair Lael Brainard indicated that the central bank could soon slow the pace of its interest rate increases.
Holiday retail sales are predicted to grow by 6-8% this year as consumer spending continues reinforcing economic activity. “Consumer demand really remains intact even though we are seeing rising interest rates, persistent inflation, [and] certainly political uncertainty,” NRF Chief Economist Jack Kleinhenz said. Moreover, as consumers took advantage of early holiday shopping discounts and deals offered by retailers, online consumer spending rose in October.
Therefore, it could be wise to add fundamentally strong retail stocks Walmart Inc. (WMT), Ulta Beauty Inc. (ULTA), and Dillard’s, Inc. (DDS) to your portfolio now.
Walmart Inc. (WMT)
World-renowned big box retailer WMT operates retail, wholesale, and other units through three segments Walmart U.S.; Walmart International; and Sam’s Club. The company offers opportunities to shop an assortment of merchandise and services at everyday low prices (EDLP) in retail stores and on e-commerce platforms.
On October 31, WMT partnered with a tech-based marketplace platform, Popable, that connects brands and spaces for short-term retail leasing; to offer small businesses pop-up shop opportunities inside WMT’s stores. This should help the company offer unique services to local brands and thus expand its operations.
In the same month, WMT and Netflix (NFLX) announced an in-store expansion of the popular Netflix Hub in more than 2,400 stores. It would offer customers a brand-new streaming gift card, fan-favorite exclusives, and more. This is expected to be strategically beneficial for WMT.
WMT pays a $2.24 annual dividend, translating to a yield of 1.62% at its current price. The company has a four-year average dividend yield of 1.72%. WMT has increased its dividend for 48 consecutive years.
For the fiscal third quarter ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion. Total assets stood at $247.66 billion as of October 31, 2022, compared to $244.85 billion a year ago.
WMT’s revenue for the fiscal quarter ending April 2023 is expected to increase 3.6% year-over-year to $145.29 billion. For the same period, its EPS is expected to increase 11.2% year-over-year to $1.45. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 13% over the past month to close the last trading session at $147.44.
WMT’s solid prospects are reflected in its POWR Ratings. The stock has an overall A grade, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, Sentiment, and Quality. Out of the 38 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #4.
To access additional POWR Ratings for WMT for Value and Momentum, click here.
Ulta Beauty Inc. (ULTA)
ULTA operates as a retailer of beauty products in the United States. The company operates 1,308 retail stores across 50 states and distributes its products through its website ulta.com and mobile applications.
ULTA’s net sales came in at $2.30 billion for the second quarter ended July 30, 2022, up 16.8% year-over-year. Its net income increased 17.8% year-over-year to $295.68 million. Moreover, the company’s income per share came in at $5.70, up 25% year-over-year.
The consensus EPS estimate of $21.32 for the ongoing fiscal year ending January 2023 represents an 18.6% improvement year-over-year. The consensus revenue estimate of $9.76 billion for the same period represents a 13.1% increase from last year. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
ULTA gained 10.7% over the past month to close the last trading session at $436.27.
ULTA’s POWR Ratings reflect this promising outlook. The stock has an A grade in Quality and a B in Sentiment. Within the 46-stock Specialty Retailers industry, ULTA is ranked #16.
Click here to see ULTA’s additional POWR Ratings for Momentum, Value, Growth, and Stability.
Dillard’s, Inc. (DDS)
DDS operates retail department stores in the United States. It offers fashion apparel, accessories, cosmetics, home furnishings, and other consumer goods. The company also engages in general contracting construction activities and owns and operates 250 Dillard’s locations.
On August 18, DDS declared a quarterly dividend of $0.20 per share, payable on October 31, 2022. Its annual dividend of $0.80 yields 0.22% on prevailing prices. The company’s dividend payouts have increased at a 21.1% CAGR over the past three years and a 20.9% CAGR over the past five years. It has a record of 11 years of consecutive dividend growth.
For the fiscal third quarter ended October 30, DDS’s net sales have increased 4.3% year-over-year to $1.54 billion. In the same period, the company’s net income and net income per share came in at $187.90 million and $17.1, respectively.
For the fiscal year ending January 2023, analysts expect DDS’s revenue to increase 5% year-over-year to $6.96 billion. In the same period, its EPS is expected to improve by 6.5% year-over-year to $42.64. Moreover, the company also beat the consensus EPS and revenue estimates in each of the trailing four quarters, which is commendable.
The stock has gained 56.3% year-to-date to close the last trading session at $383.03.
It is no surprise that DDS has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Quality and a B for Value. It is ranked #9 out of 66 stocks in the Fashion & Luxury industry.
We have also given DDS grades for Sentiment, Momentum, Growth, and Stability. Get all DDS ratings here.
WMT shares were trading at $148.07 per share on Wednesday morning, up $0.63 (+0.43%). Year-to-date, WMT has gained 3.55%, versus a -15.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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