Retail sales surged during the holiday season, despite COVID-19 fears and a global supply chain crisis. United States retail sales grew 8.5% between Nov. 1 and Dec. 24, according to a Mastercard Incorporated (MA) report. Furthermore, global retail sales are projected to grow 6.6% to $26.7 trillion by 2022, up from 2019’s $24.8 trillion.

In December, Fed Chair Jerome Powell announced that the central bank intends to taper its asset-purchase program by March and raise interest rates in 2022. Meanwhile, the former U.S. Treasury Secretary Lawrence Summers has noted that the Fed’s delayed response to rising inflation could tip the nation toward a recession.

The grocery and consumer goods industry generally holds up well during recessions due to their inelastic demand qualities. Therefore, we think retail giants The Home Depot, Inc. (HD), Walmart Inc. (WMT), Lowe’s Companies, Inc. (LOW), and Target Corporation (TGT) might be solid additions to one’s portfolio. These stocks have a record of weathering the 2008 and 2020 recessions.

Click here to checkout our Retail Industry Report

The Home Depot, Inc. (HD)

HD is a home improvement retail behemoth. The Atlanta, Ga., company’s stores sell various building materials, home improvement products, and lawn and garden products. It also offers installation services and professional service programs for customers.

On Nov. 18, HD declared a third-quarter $1.65 per share cash dividend, which was to be paid to shareholders on December 16. The dividend payment marks the 139th consecutive quarterly cash dividend payment. This reflects on the company’s ability to pay back its shareholders.

On Oct. 6, it was reported that HD and WMT’s delivery service platform Walmart GoLocal had teamed up to expand same-day and next-day delivery capabilities for home improvement customers. This should profit HD by enhancing its delivery services.

For its fiscal third quarter, ended October 31, HD’s net sales increased 9.8% year-over-year to $36.82 billion. Its operating income rose 19.4% from the prior-year quarter to $5.80 billion. Its net earnings and EPS improved 20.3% and 23.3%, respectively, to $4.13 billion and $3.92.

A $3.17 consensus EPS estimate for the fourth quarter (ending January 2022) indicates a 19.6% year-over-year increase. And the $34.81 billion consensus revenue for the same quarter reflects a 7.9% improvement from the prior-year quarter. Also,  HD has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.

The stock has gained 53.8% in price over the past year and 26.6% over the past six months to close yesterday’s trading session at $408.64.

HD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

HD has a Sentiment and Quality grade of B. In the 61-stock Home Improvement & Goods industry, it is ranked #22. The industry is rated B. Click here to see the additional POWR Ratings for HD (Growth, Value, Momentum, and Stability).

Walmart Inc. (WMT)

Bentonville. Ark.-based WMT is a retail industry giant that engages in retail, wholesale, and other unit businesses globally. The company operates through the three broad segments of Walmart U.S.; Walmart International; and Sam’s Club.

On December 2, Veriteque USA, Inc. announced the launch of its Verifique brand as a registered seller on the Walmart marketplace. The offering of presumptive field tests for a specific use inside homes and schools on the company’s marketplace should add to its revenue stream.

On December 16, Chico’s FAS became the first fashion brand to join Walmart GoLocal. The service was launched in Chicago, and Fort Myers, Fla, expanding WMT’s footprint.

On December 15, WMT announced its plans to construct a new fulfillment center in Salt Lake City, Utah, enabling the company to fulfill online orders placed on Walmart.com. It is expected that the company’s e-commerce fulfillment network will be enhanced with the construction.

WMT’s total revenues increased 4.3% year-over-year to $140.53 billion in the fiscal third quarter, ended October 31. Its operating income improved 0.2% from the same period last year to $5.79 billion. Its adjusted EPS rose 8.2% from the prior-year quarter to $1.45.

The Street’s $6.41EPS estimate for fiscal 2022 indicates a 17% year-over-year increase. And the Street’s $572.02 billion revenue estimate for the same year reflects a rise of 2.3% from the same period last year. Furthermore, WMT has topped consensus EPS estimates in three out of the trailing four quarters, which is impressive.

WMT’s stock has gained 5.2% over the past month to close yesterday’s trading session at $144.65. It has gained 3.2% in price over the past six months.

It is no surprise that WMT has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has a Growth, Value, Stability, Sentiment, and Quality grade of B. In the 39-stock Grocery/Big Box Retailers industry, it is ranked #3. The industry is rated A. To see the additional POWR Rating for Momentum for WMT, click here.

Lowe’s Companies, Inc. (LOW)

LOW is a home improvement retailer operating in the United States and globally. The Mooresville, N.C. company’s offerings include construction, maintenance, repair, remodeling, and decorating products. It also offers installation services through independent contractors.

On Nov. 17, LOW announced the launch of Lowe’s Livable Home, which offers expertise, services, and affordable products, creating a one-stop destination for universal design options. The venture should prove to be profitable for the company.

On Nov. 8, LOW announced the impending launch of an intuitive, end-to-end room scanning and estimated experience on Lowe’s iOS app, Measure Your SpaceBETA. Regarding this development, Seemantini Godbole, LOW’s Executive Vice-President, and Chief Information Officer, said, “We see a future in which the devices customers already own can sense, understand, and compile information about their home, putting it in their hands the moment they need it. We call this future spatial commerce, and we’re excited to bring it to our customers.”

For its fiscal third quarter, ended October 29, LOW’s net sales increased 2.7% year-over-year to $22.92 billion. Its gross margin rose 3.9% from the prior-year quarter to $7.59 billion. Its net earnings improved 174% from the same period last year to $1.90 billion, while EPS climbed  200% year-over-year to $2.73.

Analysts expect LOW’s EPS to increase 27.1% year-over-year to $1.69 in its fourth fiscal quarter, (ending January 2022). The Street expects its revenue to improve 2.6% from the prior-year quarter to $20.84 billion. In addition, LOW has beaten consensus EPS estimates in each of the trailing four quarters.

Over the past year, LOW’s shares have gained 59.2% in price to close yesterday’s trading session at $255.51. It has gained 30.6% over the past six months.

LOW’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. LOW has a B grade for Sentiment and Quality. It is ranked #7 in the Home Improvement & Goods industry. Click here to see the additional POWR Ratings for Growth, Value, Momentum, and Stability for LOW.

Target Corporation (TGT)

TGT is a general merchandise retailer operating in the United States that offers assortments of food, including perishables, dry grocery, dairy, and frozen items, as well as apparels and accessories. The Minneapolis, Minn., company markets its products through its stores and digital channels.

On Dec. 17, TGT announced last-minute deals on gift items across TGT’s entire portfolio of offerings. The company declared that consumers could place orders through its free same-day Drive-up and Pick-up services on Christmas eve. This should have attracted more customers, especially last-minute shoppers.

On Oct. 26, TGT introduced new features to its same-day services, with Drive Up, Order Pickup, and Same-Day Delivery services enhancements. The addition of the flexible features to its delivery services is expected to benefit the company.

TGT’s total revenue increased 13.3% year-over-year to $25.65 million in its fiscal third quarter, ended Oct. 30. Its operating income rose 3.9% from the same period in the prior year to $2.01 billion. Its net earnings improved 46.7% from the prior-year quarter to $1.49 billion. And its adjusted EPS went up 8.6% year-over-year to $3.03.

The $2.87 consensus EPS estimate for the fourth quarter (ending January 2022) indicates a 7.5% increase year-over-year. And the  $31.55 billion consensus revenue for the same quarter reflects an 11.3% improvement from the prior-year quarter. TGT has topped consensus EPS estimates in each of the trailing four quarters.

The stock has gained 31.4% in price over the past year and 3.1% over the past five days to close yesterday’s trading session at $231.95.

TGT has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a Value and Quality grade of B. It is ranked #15 in the Grocery/Big Box Retailers industry.

In addition to the POWR Rating grades we have stated above, one can see TGT ratings for Growth, Momentum, Stability, and Sentiment here.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in TGT for a 65% gain. Learn more about the RTR service here. 

Click here to checkout our Retail Industry Report

HD shares were trading at $412.84 per share on Tuesday afternoon, up $4.20 (+1.03%). Year-to-date, HD has declined -0.52%, versus a 0.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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