3 Buy-Rated Big-Box Stores at or Near All-Time Highs
Even though the spread of the COVID-19 Delta variant is leading to increasing COVID-19 cases, the big-box retail industry is expected to witness a strong rebound in sales as progress on the vaccination front continues to foster rising foot traffic in stores. Rising investor optimism about the industry’s growth prospects has caused quality big-box stocks Walmart (WMT), Costco (COST), and BJ’s Wholesale Club (BJ) trade near their all-time highs. These three stocks also currently have an overall B (Buy) rating in our POWR Ratings system. So, let’s take a closer look at these names.
Retail sales declined over the past few months as the resurgence of the COVID-19 cases again restricted people from the outdoor activities that they only recently resumed after a long period. According to Trading Economics data, U.S. retail sales fell 1.1% in July 2021, versus a consensus estimate of a 0.3% decline.
However, the big-box retail industry is expected to grow in the near term as more people get vaccinated, and the foot traffic in stores again picks up. Gus Faucher, the chief U.S. economist at PNC, said last month, “Although retail sales fell in July, the outlook for consumer spending remains positive.” Furthermore, according to a Forrester report, despite online growth, stores will still account for three-fourths of retail sales in 2024.
So, because the prospects look bright for the big-box retail industry, we think it could be wise to bet on established big-box retail stocks Walmart Inc. (WMT), Costco Wholesale Corporation (COST), and BJ’s Wholesale Club Holdings, Inc. (BJ). They each have an overall B (Buy) rating in our proprietary POWR Ratings system. Moreover, their shares are currently hovering near their all-time price highs and could keep surging in the near term.
Click here to checkout our Retail Industry Report for 2021
Walmart Inc. (WMT)
One of the largest and most diversified retailers globally, WMT operates primarily through three segments, namely, Walmart U.S.; Walmart International; and Sam’s Club. It operates roughly 10,500 stores and clubs under 48 banners across 24 countries and eCommerce websites.
On August 24, 2021, WMT announced a new line of business–Walmart GoLocal–that helps expand its expertise in delivering goods to customers and companies. Tom Ward, Walmart U.S.’ senior vice president, last mile, said, “Be it delivering goods from a local bakery to auto supplies from a national retailer, we’ve designed Walmart GoLocal to be customizable for merchants of all sizes and categories so they can focus on doing what they do best, leaving delivery speed and efficiency to us.”
For its fiscal second quarter, ended July 31, 2021, WMT’s net revenue increased 2.4% year-over-year to $141.05 billion. The company’s operating income came in at $7.35 billion, up 21.4% year-over-year. Its net income was $4.28 billion, up 56.6% sequentially. Also, its EPS increased 56.7% sequentially to $1.52.
WMT’s revenue is expected to be $580.76 billion in its fiscal year 2023, representing a 2.7% year-over-year rise. The company’s EPS is expected to increase 15.1% year-over-year to $6.31 in the current year. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 17% to close Friday’s trading session at $149.25. It is currently trading 2.9% below its all-time high of $153.66, which it hit on December 1, 2020.
It’s no surprise that WMT has an overall B rating, which equates to a Buy in our proprietary POWR Rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, it has an A grade for Stability and Sentiment, and a B grade for Value and Quality. WMT is ranked #6 of 40 stocks in the A-rated Grocery/Big Box Retailers industry. Click here to see the additional POWR Ratings for WMT (Growth and Momentum).
Costco Wholesale Corporation (COST)
Established retailer COST’s offerings include packaged foods, groceries, cleaning supplies, appliances, electronics, and health and beauty aids. It operates membership warehouses across the United States, Canada, the United Kingdom, and Japan, among other regions. In addition, it also operates eCommerce websites.
Uber Technologies, Inc. (UBER) and COST initiated a delivery pilot in July 2021 with 25 locations across Texas where COST’s members could have their groceries delivered within hours. This represents UBER’s first pilot with a food wholesaler in the United States, which could also lead to increasing demand for COST’s offerings.
COST’s total revenue increased 21.5% year-over-year to $45.28 billion for its fiscal third quarter, ended May 9, 2021. The company’s operating income came in at $1.66 billion, representing a 41.1% year-over-year rise. In addition, its net income increased 45.6% year-over-year to $1.22 billion. Also, its EPS came in at $2.75, up 45.5% year-over-year.
Analysts expect COST’s revenue to be $193.18 billion in its fiscal year 2021, representing a 15.8% year-over-year rise. In addition, the company’s EPS is expected to increase 21.7% year-over-year to $10.66 in the current year. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 42.8% in price to close Friday’s trading session at $462.55, after hitting its all-time high of $463.60. It is currently trading only 0.2% below its all-time high.
COST’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Stability, Sentiment, and Quality.
Within the Grocery/Big Box Retailers industry, it is ranked #13. Click here to see COST’s ratings for Growth, Value, and Momentum as well.
BJ’s Wholesale Club Holdings, Inc. (BJ)
One of the leading warehouse club operators, BJ operates 222 warehouse clubs and 151 gas stations. It also offers perishable, edible grocery, general merchandise, non-edible grocery products, gasoline, and other ancillary services. Moreover, it also sells its products through its website and mobile app.
BJ opened its latest club in Seabrook, N.H., on July 2, 2021. It marks its 222nd location and represents the company’s expanding reach.
BJ’s total revenue increased 5.6% year-over-year to $4.18 billion for its fiscal second quarter, ended July 31, 2021. The company’s adjusted EBITDA came in at $220.14 million, representing a 1.5% year-over-year rise. Its adjusted net income increased 5.4% year-over-year to $113.32 million, while its adjusted EPS came in at $0.82, up 6.5% year-over-year.
For its fiscal year 2023, analysts expect BJ’s revenue and EPS to increase 5.8% and 6.1% year-over-year to $16.84 billion and $3.12, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 53.3% in price to close Friday’s trading session at $59.18, after hitting its all-time high of $59.19.
BJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our POWR Rating system.
Also, the stock has a B grade for Value. Within the Grocery/Big Box Retailers industry, it is ranked #17. Click here to see the additional POWR Ratings for BJ (Growth, Stability, Momentum, Sentiment, and Quality).
Click here to checkout our Retail Industry Report for 2021
WMT shares were trading at $148.15 per share on Tuesday afternoon, down $1.10 (-0.74%). Year-to-date, WMT has gained 3.99%, versus a 21.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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