The holidays are just around the corner, and that means shopping! The four weeks between Thanksgiving and Christmas are the most profitable time of year for US retailers, and in many instances holiday sales are the difference between finishing the year with a profit or a loss.
One month out from the start of holiday shopping, even the low forecasts are predicting a strong year. The National Retail Federation estimates year-over-year sales growth of 3.8% to 4.2%, indicating total revenues of $727 billion to $730 billion. At the upper end is Deloitte, one of the Big Four accounting firms, which predicts total sales of $1.1 trillion on gains of 4.5% to 5%. To put these numbers in perspective, holiday sales have averaged 3.7% annual growth over the last five years; this year, even the lowball forecasts are higher than that. It would seem, at least for now, that the strong jobs market and rising wages are overbalancing the US-China tariff dispute.
So, we’ve used the filters on the TipRanks Stock Screener to find three buy-rated consumer/retail stocks that stand to gain from strong holiday shopping season. Let's take a closer look:
Dollar General (DG)
With year-to-date gains of 47%, Dollar General is outpacing the overall market by a good clip. The company’s recent quarterly report, for Q2 ending in August, showed strong results, with an 8.4% gain in year-over-over revenue, and an EPS beat of 10%. The report gave a boost to DG stock, which it still holds. More importantly, the company upgraded its full-year 2019 guidance in the report, raising the year’s adjusted EPS estimate from $6.45 to $6.60.
Dollar General's momentum has attracted plenty of attention from Wall Street.
Just recently, 5-star Barclay analyst Karen Short boosted her price target on DG by 27%, to $180. She wrote, “The company beat a high Q2 bar with a strong beat and raise, underscoring its industry leading execution and positioning in the dollar space. We see several pockets of upside in the model.” Her new price target indicates a potential for a 12% upside. (To watch Short's track record, click here)
Matthew Boss of JPMorgan echoed that sentiment, upping his price target to $183, and wrote, “Management's tone was increased confidence in its multi-year roadmap and defensive growth model.” Boss sees a possibility for a 14% upside.
"Our line item builds point to incremental upside opportunity the next 2 years on both the top-line and margins with $1.7B annual free cash flow generation by FY21 holding 3.0x adjusted debt leverage providing capacity to buyback north of $2B of stock annually by FY21 (= 7.5% of the float) or more than double FY19’s $1B guide (& incremental upside to our model)," Boss concluded.
The bullishness on DG has resulted in a Strong Buy analyst consensus, based on 17 buys and 3 holds set in the last three months. (See Dollar General stock analysis on TipRanks)
Target Corporation (TGT)
Target is a bigger name than Dollar General, and a higher end of merchandise. The company’s stock has performed spectacularly this year, gaining 67% so this year. The 60-day gain is also impressive, at 35%. That gain came mostly at the end of August, when Target reported a strong beat of the Q2 earnings expectations.
Target’s earnings numbers were impressive. The $1.82 EPS beat the forecast by over 12%, while the $18.4 billion in revenue was $100 million more than had been predicted. The strong earnings stood on a foundation of strong same-store sales growth, 3.4% as opposed to the 3% forecast. Target’s forward guidance for the full year was boosted on the strength of the second quarter numbers. FY2019 EPS is now expected at $6.20, where analysts had set a prediction of $5.94.
Jumping to the present day, Target stock remains on its upward trajectory and the analysts remain impressed. Initiating coverage on TGT with a Strong Buy rating, Raymond James’4-star analyst Matthew McClintock wrote, “Target is one of the few multi-product category discretionary retailers that is exceptionally well positioned to take market share.” He adds, “There is at least a $140 billion sales opportunity to gain market share in the apparel and home-furnishings segments alone.” McClintock sees Target growing its annual earnings by up to 10%, and gives the stocks a $130 price target with a 17% upside. (To watch McClintock's track record, click here)
Investment firm Cowen agrees that TGT is a stock on the way up. Analyst Oliver Chen says Target is “a best-in-class merchant and believe its private label brands across apparel and home are differentiating it from peers and helping drive strong comparable sales.” He raised his price target to $130, matching McClintock’s.
Target holds a Moderate Buy from the analyst consensus, with 15 "buys" and 7 "holds" given the stock in the last three months. Shares are selling for $110, and the average price target of $115 suggests a modest upside of 4%. Given the stock’s performance and the company’s earnings, expect this upside to increase in the near future. (See Target stock analysis on TipRanks)
TJX Companies (TJX)
Our final retailer is TJX Companies, owner of, among other chains, the discount department store TJ Maxx. TJX has posted the most modest gains of the three, but is still up 28% this year. TJX has met or beaten earnings expectations in the last two quarters, and is widely seen as undervalued.
Writing from MKM Partners, 4-star analyst Roxanne Meyer gives this stock a Buy rating and says, “TJX can take full advantage of the department store sector, which suffers from excess inventory, to generate upside. At the same time, the company can demonstrate its competitive advantage and the resiliency of the off-price model…” Meyer’s $62 price target indicates an 8% upside for TJX.
J.P. Morgan analyst Matthew Boss has recently hosted TJX CFO Scott Goldenberg at the firm’s US All Stars conference. The discussion boosted his confidence in the company's “consistency” and “global market share,” which translate to "a mid-to-high-single digit multi-year earnings growth profile and low-single-digit dividend." As a result, Boss reiterated an Overweight rating on TJX stock.
Overall, Wall Street loves TJX stock, considering most voices are betting on this department store chain. TipRanks analytics exhibit TJX as a Strong Buy. Based on 7 analysts polled in the last 3 months, 6 rate a Buy on TJX stock while only one maintains a Hold. (See TJX stock analysis on TipRanks)