Four Retail Stocks to Buy Rally Despite COVID-19

Emily Mirabelli

Four Retail Stocks to Buy Rally Despite COVID-19

Four retailers beat earnings estimates after discovering profits can come from delivering purchases outside their doors to shoppers who prefer to keep their distance.

The most recent earnings reports are telling for many of the large retailers that have spent the last few months adapting to government-issued “stay-at-home” orders to minimize the spread of COVID-19. Some of the companies that have found other ways to cater to their customers, including enhanced e-commerce platforms, curbside pickup and home delivery, have seen the reward of this restructured business model in first-quarter reports.

Though restructuring has dealt a swift blow to revenues across the board, many first-quarter reports are offering a light at the end of the tunnel, as consumers are readily adapting to new shopping methods. It could be the start of a profitable retailing trend.

One Investment Guru Points to Rally of Four Retail Stocks to Buy Despite COVID-19

Hilary Kramer, who leads several advisory services, including Value Authority, said that the goal in this unusual circumstance is for the large retail chains to simply outlast the weaker ones.

“The goal is not world domination at this point,” Kramer said. “It’s simply about outlasting the weakest rivals who were going to go under anyway and now COVID-19 will speed up the process.”

Kramer went on to highlight what the main difference is between the stronger and weaker retail companies.

“Stronger retailers already have a multi-channel footprint and can offer home delivery or curbside service,” Kramer said. “They can shut the retail stores or restrict floor traffic if needed. Weaker ones don’t have the time or the resources to do that.”

Best Buy Is One of the Four Stocks to Buy Rally Despite COVID-19

According to data from S&P Global Market Intelligence, shares of Best Buy (NYSE:BBY) rose 34.6% in April. This stoked hope among investors, as the company rebounded from its 30% drop in March. Like many retailers, the current quarantine forced Best Buy to tweak its business model by introducing curbside pickup and home delivery services.

In an interview with CNBC on Thursday, May 21, 2020, Best Buy’s Chief Executive Officer Corrie Barry cited the company’s adoption of a new business model to serve and to retain customers, even with limited access to stores.

Barry said that the company was able to retain about 81% of last year’s sales during the last six weeks of the quarter.

“The strong sales retention is a testament to the strength of our multi-channel capabilities and the strategic investments we have been making over the past several years,” Barry said.

The company reported first-quarter earnings on May 21, before the market opened for the fiscal first quarter ended May 2. According to the earnings report, the company’s revenue fell to $8.56 billion from $9.14 billion a year earlier, which still beat analysts’ estimates of $8.16 billion. Best Buy’s first-quarter net income fell to $159 million, or $0.61 per share, on a GAAP (Generally Accepted Accounting Principles) basis, from $265 million, or $0.98 per share, a year earlier.

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According to NASDAQ, the consensus earnings per share (EPS) forecast for the quarter is $0.66. However, the earnings report showed that the company beat the EPS projections of $0.67 on a non-GAAP basis that includes adjustments for restructuring charges, goodwill impairment, gains and losses on investments and other one-time items. Though Best Buy’s same-store sales were down by 5.3%, its domestic online sales spiked by 154.5%.

Best Buy’s stronger-than-expected earnings report offers an example of a large retail chain that has been able to weather the current COVID-19 storm.

Target, One of Four Retail Stocks to Buy, Trumps Estimates and Keeps Rising

In its usual creative fashion, Target (TGT:NYSE) is determined to lead the charge through the COVID-19 slump by optimizing its e-commerce platforms, collaborating with designers to launch Target-exclusive products and offering curbside delivery. By implementing these strategies, Target’s share price has recovered to roughly 8% below its pre-COVID-19 high.

In a statement on April 28, Michael Fiddelke, Target’s CFO and executive vice president, said the company expects to have the financial capacity to emerge from the pandemic in a position of strength.

“Having established an even stronger bond with our guests during this unprecedented time, we expect to have a compelling long-term opportunity to grow profitably and gain additional market share in the years ahead,” Fiddelke said.

The company’s first-quarter results ended on May 2 and blew past analysts’ projections. Zacks’ estimates quoted in a NASDAQ article predicted Target’s first-quarter revenue would spike 7% and reach $18.85 billion. The earnings report showed that revenue grew 11% to $19.62 billion, same-store sales jumped 10.8% and comparable digital sales surged 141% for the quarter — including 282% in April.

In a first-quarter report statement, Brian Cornell, chairman and chief executive officer of Target Corporation, said, “With the dedication of our team, the benefit of a sustainable business model and a strong balance sheet, we are confident Target will emerge from this crisis an even stronger retailer, with higher affinity and trust from our guests.”

Target’s report may act as a source of hope for investors willing to ride out the COVID-19 tidal wave. Investors who invest in Target may be rewarded if it continues to achieve top-line growth during the economic downturn.

One of Four Retail Stocks to Buy, Walmart Outperforms Estimates

One company that has gone to the head of the retailing pack in offering curbside pickup is Walmart (NYSE:WMT). Walmart’s share price is up more than 4% in 2020, compared to the 9% downturn in the S&P 500. Chances are its plethora of consumer services may have something to do with it.

Not only does the company offer curbside pickup and online purchasing methods, but it launched free NextDay delivery from its website in fiscal 2020 and created a grocery delivery membership option called Delivery Unlimited. On April 30, the company announced yet another delivery option called Express Delivery.

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Walmart announced the service delivers more items from the store “than ever before” to customers’ doors in less than two hours. However, the service is not free and will include an extra $10 fee, plus the delivery charge. But for customers with a Delivery Unlimited membership, it is only a $10 fee for the service.

Walmart Rallies Despite COVID-19 as One of Four Retail Stocks to Buy

Walmart’s e-commerce capabilities have placed it higher on the retail chain in terms of financial strength during this pandemic, Kramer said.

“WMT has done better because its e-commerce capabilities were much better advanced, Kramer said. “While there were a lot of inventory and delivery glitches, the site has come a long way in terms of suggesting replacements for products that are sold out or even pushing shoppers to a nearby store for curbside pickup.”

On May 6, Walmart released an statement by its CEO Doug McMillion to address the pandemic and its future effects on the retail industry. McMillon said that the company saw quick gravitation to online purchasing and curbside pickup before COVID-19 and, since the crisis began, he has seen customers embrace these options further.

“My feeling is that once this crisis is more under control, people will have seen the benefits of that service and will likely continue to use it,” McMillon said.

Walmart released its first-quarter results on May 19 and reported its adjusted earnings for the 13-week period ended on May 1 came in at $1.18 per share, up 4.4% from the same quarter last year, and $0.05 ahead of The Street’s consensus analysts’ forecast. According to Walmart’s earnings report, group earnings rose 8.6% from last year to $134.6 billion, which was securely ahead of analysts’ estimates of $131.47 billion. Walmart announced same-store sales rose 10%, which blew out Street estimates of a 7.2% gain, while e-commerce sales surged by a surprising 74%.

McMillon praised Walmart associates for the quarter’s successful results, and said, “They are rising to the challenge to serve our customers and our communities. I’m proud of how they’re adapting and performing.”

Kramer described Walmart as a strong defensive play, and investors could find it rewarding.

“As the biggest player in [consumer] staples, it has the best defensive position in the long term to capture share from weaker rivals,” Kramer continued. “We made double-digit returns here in Value Authority a few years ago and might do it again under the right conditions.”

With Walmart’s strong fiscal 2020 first-quarter results, its ability to grow amidst a country-wide shutdown and plans to continue strengthening its e-commerce outlets, the stock is a solid option for investors looking for near-term and long-term gains.

Home Depot Makes List of Four Retail Stocks to Buy Despite COVID-19

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Home Depot (NYSE:HD) released its first-quarter financial report before the market opened on May 19, after Randal Konik, of the Jefferies Financial Group, raised his target price for the stock to $269, up sharply from his previous price estimate of $228.

Home Depot’s fiscal 2020 first quarter, ended May 3, showed that net income fell 10.7% to $2.25 billion, or $2.08 per share, compared with $2.51 billion, or $2.27 per share, in Q1 a year earlier.

Zacks Consensus Estimate had projected Q1 revenue of $27.23 billion, which indicated an increase of more than 3% since its report at the same time last year. The company’s reported revenue beat expectations by rising 7.1% to $28.26 billion from $26.38 billion in Q1 last year.

Moreover, Home Depot’s same-store sales grew 6.4%, beating expectations of 4.4%, based on StreetAccount estimates reported in a CNBC article.

In the article, Ted Decker, Home Depot’s executive vice president of merchandising, said from mid-March to April that the company’s online sales soared and have continued to do so.

“During the last three weeks of the quarter, traffic to HomeDepot.com was consistently above Black Friday levels,” Decker said.

Kramer Weighs Risk and Reward of Home Depot Among Rival Retailers

Kramer stated that Home Depot is a different type of retailer, and because people are stuck at home, they are finishing projects that were put on hold, giving the company a continued source of revenue.

“HD is a little different because it’s more of a pent-up demand story as people stuck at home push the button on deferred maintenance and renovation projects,” Kramer said. “The stores are full when they’re allowed to open at all. The potential upside here is huge but the risk of a COVID relapse is also higher here.”

Four Retail Stocks to Buy Rally and Will Benefit From the Economic Reopening

With the economy reopening in phases, many retailers are seeing a controlled amount of foot traffic recently but are still holding fast to their new methods of sales. Walmart CEO McMillon opined that even when “normality” resumes, customers will still appreciate the different shopping options that are now being offered.

With first-quarter reports now out, investors should be weighing the drops and rises in earlier analysts’ forecasts and comparing those predictions to what the companies have presented. In a more distant future, the market is looking to see how these retailers are going to regain the money that was poured into the current restructuring models. While it is more than plausible that these curbside pickup services may remain permanent, it will be of interest to see if it is fiscally possible to keep them in place. If these latest reports are a sign of what is to come, these new business models may be the way of the future.

Emily Mirabelli is an editorial staffer with Eagle Financial Publications and a writer for www.stockinvestor.com.

 

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