The stock market is gearing up for a Santa Claus rally and the positive news about the COVID-19 vaccine has been a major catalyst. In addition to the vaccine, hopes surrounding another stimulus package has also buoyed investor sentiment. On December 4th, President-elect Joe Biden backed the $908 billion bipartisan stimulus plan and urged Congress for immediate action citing the state of the economy and health crisis.
Moreover, according to the latest jobs data, the US economy added 245,000 jobs in November, indicating the slowest month of growth since recovery. This has put further pressure on the requirement of a stimulus package. This package is also critical for the businesses which witnessed a prolonged slump on account of the pandemic.
As the retailers are hopeful about an uptick in business amid the holiday season, the much-needed government aid would give the necessary boost for a faster revival. Three retail stocks poised to gain against this backdrop are Home Depot, Inc. (HD), Target Corporation (TGT), and Chipotle Mexican Grill, Inc. (CMG). These companies have strong businesses and will benefit from more consumer purchasing power.
Home Depot, Inc. (HD)
HD is a global leader in the home improvement retailing. It sells various, home improvement products, building materials, lawn and garden products, and decor products through its Home Depot stores. It also offers professional installation in various categories sold through its stores as well as in-home sales programs. It has close to 2,295 retail stores across 50 states.
On November 16th, HD announced that it is buying industrial goods wholesaler HD Supply Holdings in a deal worth $8 billion. The objective behind this planned acquisition is to bolster HD’s building, utility, and maintenance products as many Americans would consider affordable housing after the pandemic.
HD’s sales during the third quarter ended November 2020 climbed 23.2% year-over-year to $33.5 million, driven by the massive demand for home improvement projects. Comparable sales for the quarter rose by 24.1%. EPS for the quarter jumped to $3.18 from $2.53 posted in the prior-year period.
The consensus revenue estimate for the quarter ending January 2021 is $30.3 billion, indicating a 17.3% increase year-over-year. Meanwhile, EPS is likely to grow 11.8% to $2.55.
On a year-to-date basis, HD climbed 20.1% to end Friday’s trading session at $263.99. Over the past six months, the stock rose 6%.
How does HD stock up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating.
It is currently ranked #27 out of 69 stocks in the Home Improvement & Goods industry.
Target Corporation (TGT)
TGT is a general merchandise retailer selling groceries, dairy, frozen items, perishables, home decor products, electronics as well as beauty, and other household items. The company also offers in-store amenities, such as Target Cafe, Target Optical, Starbucks, and other foodservice offerings. TGT sells its products through its stores as well as e-commerce channels, including Target.com. The company operated nearly 1,900 stores across the United States.
TGT entered into a deal with Ulta Beauty (ULTA) to add tiny “shop-in-shop” versions of the makeup store to its aisles beginning 2021. Initially, the products would be available in over 100 Target locations. The plan is to add hundreds of more locations.
During the third quarter ended October 2020, TGT’s total revenue surged 21.3% year-over-year to $22.6 million. The company’s EPS for the quarter climbed to $2.01 from $1.39 posted in the same period a year ago. TGT’s total comparable sales for the quarter grew 20.7%, while it’s Digital comparable sales surged 155%. Same-day services (Order Pick Up, Drive Up, and Shipment) soared 217% during the third quarter.
Analysts expect revenue for the quarter to be $26.7 billion, indicating a 13.9% year-over-year increase. EPS is expected to grow at a rate of 13.1% per annum over the next five years.
TGT rallied 36.5% on a year-to-date basis to close at $175.03 on Friday, quite close to its 52-week high at $179.82. Over the past six months, the stock advanced 45.9%.
TGT’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade, Industry Rank, and Peer Grade. It is also ranked #3 out of 18 stocks in the Grocery/Big Box Retailers industry.
Chipotle Mexican Grill, Inc. (CMG)
CMG, popularly known as ‘Chipotle’, is a chain of quick-service restaurants operating in the United States, United Kingdom, Canada, Germany, and France. It specializes in Mexican fast food with its tacos and Mission burritos being all-time favorites. CMG operates nearly 2,700 restaurants across various countries.
In a move to address the growing market for online purchases, CMG opened its first-ever Chipotle digital-only restaurant called the Chipotle Digital Kitchen in November. The new format will allow the restaurant chain to enter more urban areas that don’t require a full-fledged restaurant. Chipotle Digital would only allow pick-up and delivery.
During the third quarter ended September 2020, CMG’s revenue climbed 14.1% year-over-year to $1.6 billion. Comparable restaurant sales for the period jumped by 8.3%. CMG’s Digital sales surged 202.5% during the quarter and accounted for 48.8% of the total sales. The company’s EPS dropped to $2.82 from $3.47 posted in the same period last year.
The street expects revenue for the fourth quarter ended December 2020 to be $1.6 billion, signaling an 11.8% year-over-year growth. Meanwhile, EPS is likely to climb 31.8% to $3.77.
CMG ended Friday’s trading session at $1,334.62, gaining 59.4% year-to-date. It is trading at a level near its 52-week high of $1,379.03. Over the past six months, the stock jumped 28.1%.
CMG’s promising outlook is reflected in its POWR Ratings. It is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and a “B” for Peer Grade, and Industry Rank. It is also ranked #2 out of 49 stocks in the Restaurants industry.
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HD shares were trading at $262.12 per share on Monday morning, down $1.87 (-0.71%). Year-to-date, HD has gained 22.86%, versus a 16.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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