Despite inflationary pressures, the retail sector continues to thrive thanks to robust consumer spending and steady demand for essentials. As the holiday season approaches, big discounts and early promotions from supermarkets and hypermarkets are set to drive a significant sales boost.
Therefore, investors could consider purchasing strong retail stocks such as Amazon.com, Inc. (AMZN), Target Corporation (TGT), and Casey's General Stores, Inc. (CASY), which are poised for robust growth during the holiday season.
In June, U.S. retail sales held steady despite a dip in auto dealership receipts being balanced out by strong performance in other areas. This steadiness shows that, while lower-income consumers are cautious, higher-income shoppers still spend generously, keeping the economy on track. Retail sales increased 2.3% on a year-on-year basis in June. With enticing promotions expected to attract shoppers in July, we might see a surge in sales figures.
eMarketer forecasts that total retail sales for the 2024 holiday season will reach $1.37 trillion, up 4.8% from last year. Moreover, holiday e-commerce sales are projected to grow 9.5% year-over-year to $271.58 billion. It’s no surprise that the global retail market is expected to hit $47.24 trillion by 2029, exhibiting a CAGR of 7.7%.
As the holiday season soon approaches, consumers are gearing up for their shopping sprees, and the retail sector is poised to experience a robust sales boost, making it a key focus for market watchers.
Considering these conducive trends, let’s examine the fundamentals of the above-mentioned retail stocks in detail:
Amazon.com, Inc. (AMZN)
AMZN is a global giant in the retail sector, offering consumer products, advertising, and subscription services through online and physical stores across North America and international markets. The company has a market cap of $1.76 trillion and operates through three segments: North America; International; and Amazon Web Services (AWS).
On July 18, AMZN announced record-breaking sales from its biggest Prime Day event ever. Prime members took advantage of millions of deals over 35 categories, saving billions in the process. The company’s new AI-powered shopping assistant, Rufus, also helped millions of customers navigate the vast selection quickly and easily.
Over the 48-hour event, small and medium-sized businesses sold more than 200 million items. The event also led to a surge in Prime memberships, with millions of new members signing up in the weeks leading up to Prime Day.
In terms of the trailing-12-month net income margin, AMZN’s 7.35% is 58.7% higher than the 4.63% industry average. Similarly, its 9.79% trailing-12-month levered FCF margin is 77.2% higher than the industry average of 5.53%. Also, its trailing-12-month ROCE of 21.93% compares to the industry average of 11.48%.
For the second quarter of 2024, which ended on June 30, AMZN's total net sales increased 10.1% year-over-year to $147.98 billion, while the operating income stood at $14.67 billion, up 91% year-over-year. Its net income amounted to $13.48 billion, representing an increase of 99.8% from the last year. Also, the company’s EPS for the quarter increased 93.8% year-over-year to $1.26.
Building on this quarter's momentum, the company updated its financial guidance for the third quarter of 2024. AMZN anticipates net sales between $154 billion and $158.50 billion, with 8% to 11% growth. It also forecasts operating income in the range of $11.50 billion to $15 million, compared to $11.20 billion in the third quarter of 2023.
Street expects AMZN’s revenue and EPS for the fiscal third quarter (ending September 2024) to increase 9.9% and 20.5% year-over-year to $157.27 billion and $1.13, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of AMZN have gained 19.4% over the past nine months to close the last trading session at $170.23.
AMZN’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AMZN has a B grade for Momentum, Sentiment, and Quality. It is ranked #12 out of 52 stocks in the B-rated Internet industry. Click here to see the additional ratings for AMZN (Growth, Value, and Stability).
Target Corporation (TGT)
With a market cap of $63.22 billion, TGT is a general merchandise retailer selling products through physical stores and digital platforms. The company offers a broad range of everyday essentials and stylish, unique items at competitive prices. Most stores feature diverse merchandise, including apparel, beauty and household essentials, food and beverages, hardlines, and home furnishings.
On July 8, TGT announced a range of back-to-school deals, including 20 essential supplies for under $20 and the lowest-priced backpack in a decade at $5. The retailer also offers extra savings for Target Circle members. These value-driven promotions will likely attract new and existing customers, potentially boosting the company’s revenue during the back-to-school season.
On June 24, the company announced a partnership with Shopify Inc. (SHOP) to enhance its Target Plus marketplace with new, curated products from popular Shopify merchants like True Classic and Caden Lane. This collaboration is expected to not only expand Target Plus's online offerings but also bring select Shopify products into TGT's physical stores, providing shoppers with a wider range of affordable, high-quality brands.
The stock’s trailing-12-month ROTA of 7.49% is 74.5% higher than the industry average of 4.29%. Similarly, its 32.46% trailing-12-month ROCE is 205.6% above the industry average of 10.62%. Also, its trailing-12-month asset turnover ratio of 1.99x compares favorably to the industry average of 0.85x.
TGT’s total revenue for the fiscal first quarter (ended May 4, 2024) amounted to $24.53 billion, while its EBITDA increased 1.2% year-over-year to $2.04 billion. The company’s net earnings amounted to $942 million or $2.03 per share. In addition, its cash and cash equivalents increased to $3.60 billion from $1.32 billion recorded in the same period last year.
For the full year, the company expects a 0% to 2% rise in comparable sales and forecasts its adjusted EPS to range between $8.60 and $9.60.
The consensus revenue estimate of $25.24 billion for the fiscal second quarter (ended July 2024) represents a 1.9% increase year-over-year. The consensus EPS estimate of $2.19 for the same quarter indicates a 21.9% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 27.4%, closing the last trading session at $136.66.
It’s no surprise that TGT has an overall rating of B, which translates to a Buy in our POWR Ratings system. TGT has a B grade for Value, Momentum, and Quality. In the A-rated, 37-stock Grocery/Big Box Retailers industry, it is ranked #22.
Beyond what is stated above, we’ve also rated TGT for Growth, Stability, and Sentiment. Get all TGT ratings here.
Casey's General Stores, Inc. (CASY)
CASY is a prominent convenience retailer and pizza chain in the United States. Operating over 2,600 locations under the names Casey's and Casey’s General Store across 17 states, the company offers a range of products, including pizza, donuts, breakfast items, sandwiches, and tobacco and nicotine products.
On August 7, CASY announced its first-ever Innovation Summit, a competitive event to discover and distribute innovative products across its stores. This initiative not only gives brands a platform to showcase their offerings but also supports local brands with distribution. Moreover, it underscores the company’s commitment to expanding its food and beverage lineup, strengthening its market position, and meeting customer needs.
On July 26, CASY announced the acquisition of Fikes Wholesale, Inc. (owner of CEFCO Convenience Stores) for $1.145 billion in cash. This deal adds 198 retail stores and a dealer network, expanding the company’s footprint to nearly 2,900 stores, with a significant boost in the strategic Texas market and additional locations in Alabama, Florida, and Mississippi.
CASY's trailing-12-month ROCE and ROTA of 17.69% and 7.91% are 66.5% and 84.2% higher than their respective industry averages of 10.62% and 4.29%. Likewise, its trailing-12-month asset turnover ratio of 2.42x is 185.6% above the industry average of 0.85x.
In the fiscal fourth quarter that ended on April 30, 2024, CASY’s total revenue increased 8.2% year-over-year to $3.60 billion. Inside same-store sales grew by 5.6% compared to the previous year and 12.4% on a two-year stack basis, with an inside margin of 41.2%. The company reported an adjusted EBITDA of $224.55 million, indicating a 34.5% growth from the prior year quarter.
CASY’s net income came in at $87.02 million, up 55.1% year-over-year, while its EPS grew 57% from the prior-year quarter to $2.34. In addition, the company’s free cash flow rose 31.4% from the year-ago value to $92.07 million.
As per the fiscal year 2025 outlook, CASY projects an EBITDA growth of at least 8%. The company plans to expand its footprint by adding at least 100 stores through mergers & acquisitions and new store construction. Additionally, CASY forecasts inside same-store sales to increase by 3% to 5%, with inside margins consistent with fiscal 2024.
Analysts expect CASY’s revenue for the second quarter (ending October 2024) to grow 2% year-over-year to $4.15 billion, while its EPS for the same period is expected to increase 3.5% year-over-year to $4.39. Moreover, the company has topped the EPS estimates in each of the trailing four quarters, which is promising.
CASY shares have surged 48.3% over the past year and 31.6% over the past nine months to close the last trading session at $367.21.
CASY’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Growth and Quality. Within the Grocery/Big Box Retailers industry, it is ranked #19 out of 37 stocks. Click here to see CASY’s ratings for Value, Momentum, Stability, and Sentiment.
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AMZN shares were trading at $170.12 per share on Wednesday morning, down $0.11 (-0.06%). Year-to-date, AMZN has gained 11.97%, versus a 15.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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