The retail industry continues to grow due to rising consumer spending, stable demand for groceries and electronics, and value-seeking shoppers amid inflation. Moreover, with the rise of supermarkets and hypermarkets, the sector anticipates further growth this holiday season, as significant discounts and early promotions attract shoppers looking for end-of-summer bargains.
Therefore, investors might consider purchasing strong retail stocks such as Costco Wholesale Corporation (COST), Target Corporation (TGT), and Walmart Inc. (WMT), which are well-positioned for robust growth during the holiday season.
Holidays boost retail as grocery stores and big box outlets become key shopping destinations for food, gifts, and online purchases. In response, enterprises are adapting to changing demands by providing variety and convenience and offering personalized experiences, which boost demand and drive industry growth.
Consequently, the influx of sales during the holidays enhances retail profitability and consumer engagement. According to Statista, holiday retail sales are expected to hit $960 billion in 2024. The retail industry is projected to grow from $32.68 trillion in 2024 to $47.24 trillion by 2029, with a 7.6% CAGR.
Considering these conducive trends, let’s examine the fundamentals of the three Grocery/Big Box Retailers stock picks mentioned above, beginning with the third choice.
Stock #3: Costco Wholesale Corporation (COST)
COST and its subsidiaries engage in the operation of membership warehouses internationally. The company offers branded and private-label products across various merchandise categories. It offers dry groceries, deli products, liquor, appliances, electronics, hardware, sporting goods, and furniture.
In terms of the trailing-12-month Return on Common Equity, COST’s 31.64% is 195.7% higher than the 10.70% industry average. Its 17.72% trailing-12-month Return on Total Capital is 157.5% higher than the 6.88% industry average. Likewise, its 3.77x trailing-12-month asset turnover ratio is 342% higher than the industry average of 0.85x.
For the third quarter that ended May 12, 2024, COST’s total revenue increased 9.1% year-over-year to $58.52 billion. The company’s operating income grew 30.9% compared to the same quarter last year, reaching $2.20 billion. Its net income increased 29.1% year-over-year to $1.68 billion. Additionally, the company’s EPS was $3.78, up 29% year-over-year.
Street expects COST’s EPS and revenue for the quarter ending August 31, 2024, to increase 4.4% and 1.7% year-over-year to $5.07 and $80.26 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 54.4% to close the last trading session at $839.43.
COST’s POWR Ratings reflect its strong fundamentals. It has an overall rating of B, equating to a 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 Momentum, Stability, and Sentiment. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #25 out of 37 stocks. To see COST’s ratings for Growth, Value, and Quality, click here.
Stock #2: Target Corporation (TGT)
TGT operates as a general merchandise retailer in the United States. It offers apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as jewellery, accessories, and shoes; beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
In terms of the trailing-12-month Capex / Sales, TGT’s 3.63% is 12.1% higher than the 3.24% industry average. Its 32.46% trailing-12-month Return on Common Equity is 203.3% higher than the 10.7% industry average. Moreover, its 1.99x trailing-12-month asset turnover ratio is 133.2% higher than the industry average of 0.85x.
For the first quarter which ended on May 4, 2024, TGT's total revenue was $24.53 billion, and its operating income was $1.30 billion. The company’s net earnings and EPS stood at $942 million and $2.03, respectively. Moreover, as of May 4, 2024, TGT’s cash and cash equivalents came in at $3.60 billion, compared to $1.32 billion as of April 29, 2023.
For the quarter ended July 31, 2024, TGT’s EPS and revenue are expected to increase 21.9% and 1.8% year-over-year to $2.19 and $25.22 billion, respectively. TGT surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, its stock has gained 22% to close the last trading session at $133.97.
TGT’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Quality. It is ranked #22 in the same industry. To access the additional grades of TGT for Growth, Stability, and Sentiment, click here.
Stock #1: Walmart Inc. (WMT)
WMT engages in the operation of retail, wholesale, and other units worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, membership-only warehouse clubs, e-commerce websites, and mobile commerce applications.
On May 22, 2024, WMT announced a partnership with Pawp to provide members with 24/7 virtual access to veterinary experts. This new benefit offers unlimited telehealth services for pets, enhancing convenience and reducing costs for Walmart+ members.
In terms of the trailing-12-month Return on Common Equity, WMT’s 24.65% is 130.3% higher than the 10.70% industry average. Its 11.49% trailing-12-month Return on Total Capital is 66.9% higher than the 6.88% industry average. Likewise, its 2.63x trailing-12-month asset turnover ratio is 209% higher than the industry average of 0.85x.
During the fiscal first quarter that ended April 30, 2024, WMT’s total revenues rose 6% year-over-year to $161.51 billion. Similarly, its adjusted operating income increased 13.7% from the year-ago value to $7.09 billion. The company’s consolidated net income attributable to WMT came in at $5.10 billion and $0.63 per common share, up 205.1% and 200% year-over-year, respectively.
Analysts expect WMT’s revenue for the quarter ended July 31, 2024, to increase 4.3% year-over-year to $167.22 billion. Its EPS for the same quarter is expected to grow 5% year-over-year to $0.64. It surpassed the consensus EPS estimates in each of the trailing four quarters. WMT’s stock has gained 28.8% year-to-date over the past six months to close the last trading session at $67.66.
It’s no surprise that WMT has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Stability and Sentiment and a B for Momentum. It is ranked #13 in the Grocery/Big Box Retailers industry. Beyond what we have stated above, we also have given WMT grades for Growth, Value, and Quality. Get all the WMT ratings here.
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WMT shares were trading at $67.84 per share on Friday afternoon, up $0.18 (+0.27%). Year-to-date, WMT has gained 29.98%, versus a 12.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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