It hasn’t exactly been smooth sailing for retail stocks so far in 2022 – but a comeback could be in the cards.
True, retailers have continued to feel the heat of the macroeconomic headwinds, including inflation and supply-chain disruptions. And rising commodity prices due to the conflict between Russia and Ukraine only adds to the industry’s woes.
This slowdown is seen in the U.S. Census Bureau’s monthly retail sales report, which ticked up marginally (by 0.3%) in February when compared to January’s figures.
But on a year-over-year basis, retail sales in February were actually up 17.6%. And the National Retail Federation (NRF) projects retail sales this year will grow in the range between 6% and 8%, even in the face of broader headwinds.
“Despite all that’s been thrown at them including inflation, supply-chain constraints, market volatility and significant geopolitical events, consumers remain able and willing to spend,” Matthew Shay, CEO of the National Retail Federation, said.
Underscoring this is data from the Bank of America Institute, which showed credit and debit card spending was up 11% year-over-year in March.
And despite surging food and energy prices, consumers’ “balance sheets appear strong enough to weather the storm, provided it doesn’t persist too long,” says David Tinsley, senior economist for the Bank of America Institute.
In this scenario, should investors consider retail stocks? Wall Street analysts seem to say yes.
Using the TipRanks database, we have shortlisted five retail stocks that are heavily favored by their covering analysts. What’s more, each offers significant upside potential to current levels based on their consensus price targets.
Data is as of April 5. TipRanks consensus price targets and ratings are based on analyst opinions issued over the past three months. Stocks listed in reverse order of consensus rating, and then 12-month price targets.
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The RealRealGetty Images
Market value: $728.6 millionTipRanks consensus price target: $14.14 (80.6% upside potential)TipRanks consensus rating: Moderate BuyThe RealReal (REAL, $7.83) is an online marketplace for authenticated, resale luxury goods that currently has more than 24 million members. Shares of the company have taken a beating alongside other retail stocks this year, down 32.6% for the year-to-date.
At its Investor Day in late March, the luxury goods retailer announced its Vision 2025 financial targets.
“As we previously committed, we are targeting positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] for full year 2024, based on strong top-line growth, operational excellence and fixed-cost management,” said Robert Julian, chief financial officer of The RealReal, in a press release preceding the event. “Our Vision 2025 for The RealReal is $5+ billion of gross merchandise value (GMV), $1.5+ billion of total revenue and $100+ million of positive adjusted EBITDA.”
Management expects REAL to be profitable on an adjusted EBITDA basis in 2024 due to three main assumptions: “Continued annual top-line growth of at least 30%, operational excellence with improved variable cost productivity; and number three, controlling our fixed costs and leveraging our prior investments in technology and stores.”
BTIG analyst Marvin Fong came away optimistic about the luxury stock following the Investor Day as the company provided “investors with a clearer financial model” and gave him “incrementally more confidence in the path to breakeven.”
Elaborating further, the analyst pointed out that REAL’s fixed costs are set to rise due to a new distribution facility in Arizona, expansion of its retail stores, and investment in people and technology.
Fong thinks that these investments should result in enhancing business efficiency. And even if “inflation drives up its fixed costs above target, it will also likely help pricing on consigned goods, making inflation relatively neutral to the business.”
As a result, the analyst has rated the stock a Buy with a price target of $12.
Of the 14 analysts who have sounded off on REAL stock over the past three months, nine are in the bull camp, according to TipRanks. TipRanks offers up a full analyst rundown of REAL shares.
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Amazon.comGetty Images
Market value: $1.7 trillionTipRanks consensus price target: $4,143.76 (26.3% upside potential)TipRanks consensus rating: Strong BuyAmazon.com (AMZN, $3,281.10) has been a beacon of light among retail stocks of late. Shares are up 12.6% in the past month after the e-commerce giant’s board of directors approved a 20-for-1 stock split. AMZN also authorized a stock buyback of up to $10 billion of the company’s shares.
This news came even as AMZN investors have been wondering about whether macroeconomic headwinds will weigh on the company’s first quarter. But Guggenheim analyst Seth Sigman has some reassuring news on that front.
The analyst states that AMZN “may be better positioned to navigate macro factors.” Elaborating further, Sigman points out that after monitoring key trends like customer income so far in Q1, “AMZN’s high-income consumer seems to have stabilized after slowing last year, while its lower income customer has started to moderate, but AMZN is outperforming relative to the broader competitive set that we track.”
Sigman also noted other positives for the stock, including the e-commerce company’s improving market share across different categories and growth in the frequency of customers’ purchases.
While the analyst is bullish on the stock with a Buy rating, Sigman believes that the timing of Amazon’s Prime Day “will be a key variable” in the second and third calendar quarter. Sigman’s above-consensus $4,300 price target anticipates AMZN shares returning 31% from current prices.
Wall Street is plenty bullish in general, with 34 of 35 covering analysts issuing Buy calls on AMZN over the past three months. See which other analysts are in the Amazon Buy camp on TipRanks.
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Home DepotGetty Images
Market value: $315.0 billionTipRanks consensus price target: $382.56 (25.5% upside potential)TipRanks consensus rating: Strong BuyShares of Home Depot (HD, $304.86) have seen a widespread sell-off and are down 26.5% for the year-to-date. This is even as the Dow Jones stock delivered better-than-expected fourth-quarter results. But it seems the company’s fiscal outlook disappointed investors.
Home Depot’s management expects sales and comparable sales growth to be “slightly positive” this fiscal year, while operating margin is projected to be flat. In addition, earnings growth is anticipated to be in the low single digits.
But Morgan Stanley analyst Simeon Gutman thinks that this underwhelming outlook for fiscal 2022 is fueled by macroeconomic uncertainties rather than a reflection of HD’s business. The analyst came away upbeat about the stock following a meeting with the home improvement retailer’s management, including new CEO Ted Decker.
Gutman is reassured by the management’s confidence in HD’s medium- and long-term growth outlook. “The structural outlook for home improvement is bullish, HD is primed to take share and win with the Pro, and One HD investments are on the cusp of paying off,” he adds.
Gutman has an Outperform (Buy) rating on the stock and a price target of $380.
Most analysts on the Street share this optimism, with HD one of the Strong Buy-rated retail stocks in the TipRanks universe. Of the 21 analysts surveyed by TipRanks, 17 categorize Home Depot stock as a Buy. Check out their complete price targets and analysis.
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Lowe’sGetty Images
Market value: $135.5 billionTipRanks consensus price target: $275.77 (34.6% upside potential)TipRanks consensus rating: Strong BuyLowe’s (LOW, $204.87) is the second home improvement name on this list of retail stocks.Shares of the value stock are off 20.7% year-to-date, even as the retailer delivered strong Q4 results. Investors seem to be concerned with macroeconomic conditions such as the rising inflation impacting the company’s optimistic fiscal 2022 outlook.
Management stated on its fourth-quarter earnings call that it was raising its sales outlook for FY22 and expects it to range between $97 billion and $99 billion, with comparable sales likely to go down 1% or up 1%. But Lowe’s cautioned that this outlook assumes “lumber pricing will return to a more normalized level in the second half of the year.”
So, how is LOW’s optimistic outlook materializing so far?
For Evercore analyst Greg Melich, his econometric model – the Home Improvement Lead Indicator (HILI) – seems to indicate that the home improvement market remains strong, “despite headwinds from increasing rates and falling sentiment.”
Melich adds that the home improvement spending per occupied home is “above average, yet remains well below prior peaks.”
For the analyst, LOW remains his “preferred stock to play these trends.” He is bullish with a Buy rating and a price target of $255.
However, Gordon Haskett analyst Chuck Grom has a different take. While reiterating a Buy on the stock, the analyst lowered the price target to $255 from $285 as he remained concerned about the recent traffic trends in the month of March. Combined with rising interest rates, particularly on mortgage loans for 30 years, premium valuations for home improvement retailers seem “harder to justify,” according to Grom.
Grom and Melich are among 13 of 14 covering analysts who have said LOW stock is a Buy over the past three months. Check out Wall Street’s average, highest and lowest price targets for LOW on TipRanks.
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Academy Sports and OutdoorsGetty Images
Market value: $3.3 billionTipRanks consensus price target: $58.80 (54.2% upside potential)TipRanks consensus rating: Strong BuyAcademy Sports and Outdoors (ASO, $38.14) is a sporting goods and outdoor recreation retailer in the U.S. Shares have been swept up in the sell-off among retail stocks and are down 13.1% year-to-date.
The consumer discretionary stock’s troubles on the charts come even as ASO delivered its highest sales and profits in the company’s history in fiscal 2021. For the full year, the retailer’s net sales rose 19.1% to a record $6.8 billion.
Net income more than doubled to $671.4 million, making it the “the most profitable year in the company’s history,” according to its fiscal 2021 press release.
“For the second consecutive year, Academy delivered record financial results, driven by a dedicated, adaptable team, lasting operational improvements and strong consumer demand,” Michael Mullican, chief financial officer of Academy Sports and Outdoors, said.
For fiscal 2022, ASO expects net sales to range from $6.6 billion to $6.8 billion and adjusted earnings to arrive between $6.70 per share and $7.25 per share.
Following the company’s financial results, Stephens analyst Daniel Imbro maintained an Overweight (Buy) on the stock and raised the price target from $68 to $70. The analyst is upbeat about ASO’s Q4 results – which showed solid top- and bottom-line growth – and called it “another quarter of strong margin leverage.”
Imbro believes investor concerns over the sustainability of the company’s stellar financial results are overblown and thinks that the stock’s current valuation is “much too cheap for the opportunity here.”
The pros certainly agree that ASO is one of the best retail stocks out there. All five covering analysts surveyed by TipRanks that have sounded off over the past three months call the stock a Buy. Check out their price targets and analysis at TipRanks.