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Which Retail Stocks to Consider Ahead of the Holiday Season

Nov 14, 2018

 

  • It is a critical time for US retail stocks as we inch closer to the holiday season and prepare for major retail companies in the S&P 500, including Macy’s, Inc. (M), Nordstrom, Inc. (JWN), and Walmart Inc. (WMT) to report earnings through the last two weeks of earnings season.
     
  • The next two months will set the tone for US markets and macroeconomic indicators through 2019 with a majority of annual US consumer spending taking place during the holiday season -- historically, consumer spending has been responsible for 70% of annual US GDP. 
     
  • An analysis of retail stocks’ next-twelve-months price/earnings (NTM P/E) vs. their last-twelve-months return on equity (LTM ROE) reveals that there appears to be a disconnect between the valuations of retail stocks relative to their profitability, as indicated by the negatively-sloped regression line. Normally, high profitability (LTM ROE) would warrant a larger trading multiple (NTM P/E), however, the negatively-sloped regression line indicates the opposite.  
     
  • Lands’ End (LE), National Vision Holdings, Inc. (EYE), Ollie’s Bargain Outlet Holdings, Inc. (OLLI), and Five Below, Inc. (FIVE) all appear to be heavily overvalued ahead of the holiday season.
     
  • Of the four companies highlighted as expensive, 1 is rated ‘Top Short’ in our Global Top Stock Ideas -- Lands’ End, Inc. (LE) is rated ‘Top Short’ in our US Consumer Discretionary Global Top Stock Ideas.   
     
  • Asbury Automotive Group (ABG), Macy’s (M), Group 1 Automotive (GPI), and Party City Holding Company (PRTY) are companies priced cheaply relative to their profitability, according to a regression line of the chart below. Companies like TJX Companies (TJX), Kroger (KR), Nordstrom (JWN), and Ross Stores (ROST) may be stronger and safer retail investment opportunities ahead of the holiday season, however, as they have generated extremely strong profitability despite a turbulent global retail landscape. While there is no telling how the changing retail landscape will affect ‘cheaply’ priced retail stocks this holiday season, TJX, KR, JWN, and ROSE have displayed a proven ability to generate returns through a choppy retail environment.
     
  • Of the companies highlighted as cheap, none are rated “Top Buy” in our Global Top Stock Ideas. Meanwhile, TJX Companies (TJX) is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas and US Consumer Discretionary Global Top Stock Ideas and Ross Stores (ROST) is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas and US Consumer Discretionary Global Top Stock Ideas.

 

 

Source: Capital IQ
Name Ticker FY3Q2018 EPS Estimate FY3Q2018 EPS Actual FY4Q2018 EPS Estimate
Abercrombie & Fitch Co. Class A ANF 0.23 0.15 1.07
Advance Auto Parts Inc. AAP 1.19 1.56 0.80
American Eagle Outfitters Inc. AEO 0.38 0.36 0.44
America's Car-Mart Inc. CRMT 0.55 1.82 1.02
Asbury Automotive Group Inc. ABG 1.88 2.18 2.03
AutoNation Inc. AN 1.23 1.23 1.16
Best Buy Co. Inc. BBY 0.78 0.78 2.04
Big Lots Inc. BIG 0.04 0.10 2.45
Booking Holdings Inc. BKNG 37.16 37.02 18.49
Boot Barn Holdings Inc. BOOT 0.44 0.73 0.16
Buckle Inc. BKE 0.38 0.41 0.72
Caleres Inc. CAL 0.86 0.80 0.46
CarMax Inc. KMX 0.81 0.81 0.84
Casey's General Stores Inc. CASY 5.08 5.08 0.65
Chico's FAS Inc. CHS 0.12 0.13 0.09
Children's Place Inc. PLCE 2.47 2.44 2.49
Citi Trends Inc. CTRN 0.00 0.05 0.44
Conn's Inc. CONN 0.05 0.05 0.46
Costco Wholesale Corporation COST 1.70 1.70 2.37
Dick's Sporting Goods Inc. DKS 0.25 0.35 1.18
Dillard's Inc. Class A DDS 0.15 0.50 1.88
Dollar General Corporation DG 0.94 0.93 1.47
Dollar Tree Inc. DLTR 0.89 1.01 1.88
DSW Inc. Class A DSW 0.53 0.05 0.27
Etsy Inc. ETSY 0.07 0.15 0.21
Expedia Group Inc. EXPE 2.54 3.43 0.52
Express Inc. EXPR 0.09 0.08 0.32
Five Below Inc. FIVE 0.13 0.18 1.17
Foot Locker Inc. FL 0.79 0.81 1.27
GameStop Corp. Class A GME 0.43 0.59 1.94
Gap Inc. GPS 0.55 0.58 0.58
Genesco Inc. GCO 1.17 -8.56 2.07
Group 1 Automotive Inc. GPI 2.34 1.74 2.24
Groupon Inc. GRPN -0.02 0.08 0.10
GrubHub Inc. GRUB 0.23 0.24 0.08
Guess? Inc. GES 0.00 -0.04 0.55
Hibbett Sports Inc. HIBB 0.21 0.37 0.46
Kohl's Corporation KSS 0.72 0.70 1.80
Kroger Co. KR 0.41 0.44 0.64
Lands' End Inc. LE 0.00 0.01 0.44
Lithia Motors Inc. Class A LAD 2.50 3.84 2.48
Macy's Inc M 0.22 0.12 4.26
MarineMax Inc. HZO 0.81 0.75 0.24
Monro Inc MNRO 0.48 0.35 0.52
Murphy USA Inc. MUSA 1.60 1.38 1.39
National Vision Holdings Inc. EYE 0.05 0.07 -0.04
Nordstrom Inc. JWN 0.64 0.67 1.25
Nutrisystem Inc. NTRI 0.56 0.54 0.60
Office Depot Inc. ODP 0.13 0.11 0.08
Ollie's Bargain Outlet Holdings Inc OLLI 0.20 0.29 0.49
Party City Holdco Inc. PRTY 0.14 -0.03 1.03
Penske Automotive Group Inc. PAG 1.34 1.53 1.19
PetMed Express Inc. PETS 0.35 0.44 0.45
PriceSmart Inc. PSMT 0.60 0.61 0.67
Quotient Technology Incorporated QUOT -0.04 -0.08 -0.01
Qurate Retail Inc. Class A QRTE.A 0.23 0.16 0.67
Rent-A-Center Inc RCII 0.28 0.24 0.29
Ross Stores Inc. ROST 0.66 0.72 0.93
Shoe Carnival Inc. SCVL 0.62 0.66 0.09
Shutterstock Inc. SSTK 0.19 0.21 0.29
Signet Jewelers Limited SIG 0.24 -0.20 4.31
Sonic Automotive Inc. Class A SAH 0.44 0.35 0.87
Sprouts Farmers Markets Inc. SFM 0.26 0.29 0.18
Target Corporation TGT 0.87 0.88 1.37
Tiffany & Co. TIF 0.77 0.80 0.54
TJX Companies Inc TJX 0.50 0.50 0.63
Tractor Supply Company TSCO 0.87 0.95 1.08
Ulta Beauty Inc ULTA 1.66 1.70 2.79
Urban Outfitters Inc. URBN 0.32 0.41 0.63
Walgreens Boots Alliance Inc WBA 1.25 1.35 1.30
Walmart Inc. WMT 0.97 0.58 1.35
Zumiez Inc. ZUMZ 0.48 0.48 0.89