3 Retail Stocks You Can Buy and Hold for the Next Decade
July 07, 2021 at 05:07 AM EDT
As people go back to socializing and in-store shopping in increasing numbers with most of the U.S. population now having had at least one vaccination shot, retailers are experiencing a significant resurgence in sales. Also, increased personal consumption and government spending are expected to power the retail industry further. Consequently, we believe that retail companies with strong fundamentals, such as Walmart (WMT), Home Depot (HD), and Costco Wholesale (COST), are well positioned to witness solid growth this year and beyond. Let’s discuss.
A return to normalcy, on the back of a rapid rollout of vaccines and government stimulus spending, is boosting consumer spending, which in turn is driving retail-sales growth. Because most of the U.S. population has now been vaccinated, the pent-up demand for in-store shopping is expected to drive retail companies’ growth. In addition, as the need for digitization and online shopping grows, industry leaders are focusing on modernizing their operations to meet the needs of customers and simultaneously boost their revenue through digital engagements.
As the economy recovers from the COVID-19 pandemic and customers spend the money that they have saved over the past year, retail sales are projected to rise between 10.5% - 13.5% to $4.44 trillion - $4.56 trillion in 2021. Indeed, the National Retail Federation expects the retail industry to witness “the fastest growth” in the country since 1984.
Walmart Inc. (WMT)
WMT operates retail, wholesale, eCommerce and other businesses worldwide, providing a wide range of products and services at every day low prices (EDLP). Walmart U.S., Walmart International, and Sam's Club are the company's three business segments. Money orders, prepaid cards, money transfers, check cashing, and bill payment are among the other products and services the company offers.
Last month, WMT announced a strategic partnership with Ibotta, a renowned cash back rewards company, to build and launch a new digital offers program on Walmart.com and the Walmart app. With the program, customers will be able to get hundreds of cash rebates on popular products. This should help WMT attract more customers and further boost its revenue.
During the first quarter, ended April 30, 2021, WMT’s total revenue increased 2.7% year-over-year to $138.31 billion. Its operating income rose 32.3% from its year-ago value to $6.91 billion, while its net sales under Sam’s Club increased 10.1% from the prior-year quarter to $16.7 billion. Also, the company’s U.S. e-commerce sales rose 37% year-over-year.
A $5.97 consensus EPS estimate for the current year represents an 8.9% improvement year-over-year. Analysts expect WMT's revenue to increase 2.5% year-over-year to $567.47 billion in its fiscal year 2023. The stock has gained 17.7% over the past year.
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 is also rated an A for Stability and Sentiment, and a B for Momentum and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #2 of 40 stocks. To see additional POWR Ratings for Growth and Value for WMT, click here.
The Home Depot, Inc. (HD)
HD is a leading retailer of home improvement products. It offers a variety of products that include building materials, home remodeling products, lawn and garden products, and home décor. The company also allows its do-it-yourself and professional customers to purchase installation, home maintenance, and professional service packages.
Last month, HD announced the launch of its new “Rent Online, Pick-up in Store” technology. According to the company, this innovative online technology will help consumers save time in seeking Pro and DIY products. The service should in turn allow HD to cater the customers in a more convenient and timely manner and drive business growth.
HD’s net sales increased 32.7% year-over-year to $37.5 billion in the first quarter, ended May 2, 2021. Its operating income grew 76.5% from its year-ago value to $5.78 billion, while its net income came in at $4.14 billion, representing an 84.6% increase from the prior-year period. The company’s EPS increased 85.6% from the year-ago value to $3.86.
HD is expected to generate 8.6% revenue growth for the current year. Furthermore, HD has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Its EPS is estimated to increase 18.8% year-over-year to $14.19 in the current year. Over the past year, HD’s stock has gained 27.9%, and it has gained 20.2% so far this year.
HD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum, and a B for Quality and Sentiment. In the A-rated Home Improvement & Goods industry, it is ranked #31 of 65 stocks.
In total, we rate HD on eight different levels. Beyond what we’ve stated above, we have also given HD grades for Value, Growth, and Stability. Get all the HD ratings here.
Costco Wholesale Corporation (COST)
COST operates membership warehouses through its subsidiaries in various countries. It offers a wide range of products, including dry and packaged foods, nonalcoholic beverages, cleaning supplies, appliances, and electronics products. It also owns and manages 615 gas stations, as well as pharmacies, optical dispensing centers, food courts, and hearing aid facilities.
COST’s revenue increased 22% year-over-year to $45.28 billion in the third quarter ended May 9, 2021. Its operating income surged 41.1% year-over-year to $1.66 billion. The company’s net income increased 45.6% from its year-ago value to $1.22 billion over this period. Its EPS increased 46% year-over-year to $2.75.
The company’s EPS is expected to grow 20.8% year-over-year to $10.58 in the current year. Analysts expect COST’s revenue to increase 15.1% in 2021. COST’s stock has gained 28% over the past year and 10.8% over the past three months.
It is no surprise that COST has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality, Sentiment, and Stability. In the A-rated Grocery/Big Box Retailers industry, it is ranked #9 of 40 stocks.
In addition to the POWR Ratings grades we have just highlighted, you can see COST’s ratings for Growth, Momentum, and Value here.
WMT shares rose $0.26 (+0.19%) in premarket trading Wednesday. Year-to-date, WMT has declined -2.07%, versus a 16.67% rise in the benchmark S&P 500 index during the same period.
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.3 Retail Stocks You Can Buy and Hold for the Next Decade appeared first on StockNews.com