Solid progress on the COVID-19 vaccination front and a consequent easing of social distancing restrictions has been driving increasing foot traffic at brick-and-mortar stores over the past couple of months. Furthermore, many retailers have strengthened their digital presence over the last year. Retail sales grew an estimated 6.7% in 2020, well above the five-year 4.4% average.
With 53.6% of the U.S. population having been vaccinated with at least one dose, consumers are now increasingly opting for in-person shopping. According to the National Retail Federation (NRF), the retail industry is rebounding at record levels, at a rate last witnessed 15 years ago. The NRF also forecasts the retail sales to grow between 10.5% -13.5% to more than $4.44 trillion this year.
Given this backdrop, we believe major companies in this space, for example Walmart Inc. (WMT) and Costco Wholesale Corporation (COST), should be good names in which to invest and hold for a long term.
Walmart Inc. (WMT)
WMT is the largest retailer in the world. It operates in 24 countries and has e-commerce websites that offer a wide range of daily needs items. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club.
On June 17, WMT’s CEO unveiled its partnership with DroneUp to create a delivery network operated by drones. This move should allow WMT to strengthen its e-commerce business and expand its market reach, while reducing its operating costs.
In May, WMT and Gap Inc. (GPS) announced a strategic partnership to launch Gap’s new home collection exclusively on Walmart’s retail platform, which will be available from June 24 onwards. This partnership should help WMT to attract more customers in the WMT zone with the addition of GAP’s signature collection.
Also in May, WMT and its subsidiary, Sam’s club, began offering COVID-19 vaccines in all their pharmacies across 49 states. This should allow WMT’s segment revenues to increase substantially in the near term.
WMT’s net sales increased 2.6% year-over-year to $137.16 billion in its fiscal first quarter, ended April 30. Its operating income grew 32.3% from its year-ago value to $6.91 billion. WMT’s revenues came in at $138.31 billion, indicating a 2.7 % rise year-over-year. Its cash and cash equivalents balance rose 52.8% from the prior year quarter to $22.89 billion over this period.
A $567.60 billion consensus revenue estimate for the next year indicates a 2.5% increase year-over-year. The Street expects the company’s EPS to rise 4.9% to $6.26 next year. WMT has an impressive earnings surprise history as well; it beat consensus EPS estimates in three out of trailing four quarters. Shares of WMT have gained 12.3% over the past year to close yesterday’s trading session at $135.96.
It is no surprise that WMT has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has an A grade for Stability and Sentiment, and a grade B for Value and Quality. Among the 39 stocks in the Grocery/Big Box Retailers industry, WMT is ranked #2.
Beyond what we’ve stated above, we have also rated WMT for Momentum and Growth. Click here to view all WMT Ratings.
Costco Wholesale Corporation (COST)
COST operates membership warehouses in the United States and other countries. The company provides branded and private-label products in a range of merchandise categories. It also offers dry and packaged foods, groceries, appliances and electronics. COST maintains an online presence also. The company had 809 warehouses worldwide, as of April 22.
On June 3, COST reported monthly net sales of $15.59 billion for the four weeks ended May 30, 2021, indicating a 24.2% increase from the year-ago value. This improvement in net sales demonstrates the company’s impressive performance and expanding customer base.
On April 14, COST increased its dividend payouts by 12.9%. It approved a quarterly dividend of 79 cents per share.
COST’s revenue increased 21.5% year-over-year to $45.28 billion in its fiscal third quarter, ended May 9. Its operating income grew 41.1% from its year-ago value to $1.66 billion, while its net income improved 45.6% year-over-year to $1.22 billion. The company’s EPS increased 45.5% year-over-year to $2.75.
Analysts expect COST’s revenues to increase 10.6% year-over-year to $59.04 billion in the current quarter, ending August 31, 2021. A $3.36 consensus EPS estimate for the current quarter indicates a 10.5% rise from the same period last year. The company has an impressive earnings surprise history as well; it beat the consensus EPS estimates in three of the trailing four quarters. Shares of COST have gained 30.1% over the past year, and 4% year-to-date.
COST has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock has an A grade for Sentiment and a B grade for Quality and Stability. COST is ranked #9 in the Grocery/Big Box Retailers industry.
To see additional COST Ratings for Value, Growth and Momentum, click here.
WMT shares were trading at $136.91 per share on Thursday afternoon, up $0.95 (+0.70%). Year-to-date, WMT has declined -4.25%, versus a 14.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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