A faster-than-expected economic recovery and job growth have drove aggregate spending up significantly last two month. According to the U.S. Department of Commerce, the Personal Consumption Expenditures Price Index rose 3.6% sequentially in April. Multiple fiscal stimulus checks distributed since last year have also contributed to the rise in consumer spending.
Due to the success nations’ ongoing vaccination drive, many consumer companies are improving their services and launching new products to capitalize on an expected increase in demand this summer. Overall, consumer stocks are benefitting from the gradual reopening of the economy and rising consumer spending. This is evident in Vanguard Consumer Discretionary ETF’s (VCR) 22.3% returns versus SPDR S&P 500 Trust ETF’s (SPY) 19% gains over the past nine months.
McDonald’s Corporation (MCD)
MCD operates and franchises McDonald’s restaurants worldwide. They mainly serve locally relevant menus of fast-food, soft drinks and beverages. The company operates through three segments—U.S., International Operated Markets and International Developmental Licensed Markets. As of December 31, 2020, the company operated 39,198 restaurants.
On May 20, 2021, MCD’s USA subsidiary announced bold new investments to further reflect its diverse customers, crew members and communities in its marketing. Over the next four years, MCD says it will increase national investments in diverse-owned partners from 4% to 10%. MCD will forge new multi-year partnerships with diverse-owned media and production companies and content creators, which will support its long-term growth and strengthen the broader marketing supply chain. Last, it will form an advisory board of marketing and advertising experts to help dismantle growth barriers for diverse-owned companies.
For its fiscal year 2021 first quarter, ended March 31, MCD’s total revenues increased 8.7% year-over-year to $5.12 billion. The company’s operating income came in at $2.28 billion, which represented a 34.7% improvement year-over-year. While its net income increased 38.9% year-over-year to $1.54 billion, its non-GAAP EPS increased 30.6% from the prior-year period to $1.92.
A $2.08 consensus EPS for the current quarter, ending June 30, 2021, represents a 215.6% improvement year-over-year. The $5.49 billion consensus revenue estimate for the current quarter represents a 46% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 20.4% rate per annum over the next five years. The stock has gained 13.5% over the past three months and closed yesterday’s trading session at $233.24.
MCD’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, 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.
The stock has an A grade for Quality, and B grade for Growth and Stability. Click here to see the additional ratings for MCD (Value, Sentiment and Momentum). MCD is ranked #7 of 47 stocks in the A-rated Restaurants industry.
Best Buy Co., Inc. (BBY)
BBY retails consumer electronics, home office products, entertainment software, appliances, and related services. The company offers products and services to customers visiting its retail stores, engaging with Geek Squad agents, or using its website or mobile applications. As of January 30, 2021, it had 1,126 large-format and 33 small-format stores.
On May 20, BBY’s Health subsidiary introduced its Lively Smart smartphone, which is designed to make it easier for older adults to access the phone features they care most about. The company has included a Lively Health and Safety Services app that has access to urgent response and care from medical workers 24/7, and a lively link app that informs about their family and friends’ health and safety. By focusing on the betterment of the active aging population, such virtual help solutions in BBY’s smartphone are expected to generate good sales in the coming months.
BBY Health’s Lively Health & Safety Services has been available on Apple Watch since March 3.
During the fiscal year 2022 first quarter, ended May 1, 2021, BBY’s revenues increased 35.9% from the prior-year period to $11.64 billion. The company’s non-GAAP gross profit increased 37.9% year-over-year to $2.71 billion. Its non-GAAP operating income came in at $741 million, which represented a 196.4% rise from the prior-year period. Its non-GAAP EPS increased 232.8% year-over-year to $2.23.
Analysts expect BBY’s EPS to be $1.89 for its fiscal 2022 second quarter, ending July 30, 2021, which represents a 10.4% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, analysts expect its revenue to be $11.46 billion for the second quarter, representing a 15.6% rise year-over-year. BBY’s EPS is expected to grow at a 9.9% rate per annum over the next five years. The stock has gained 13% over the past three months and closed yesterday’s trading session at $114.90.
It’s no surprise that BBY has an overall rating of A, which equates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Momentum, and a B grade for Value, Quality and Sentiment. Click here to see the additional ratings for BBY (Growth and Stability). BBY is ranked #3 of 36 stocks in the B-rated Specialty Retailers industry.
American Eagle Outfitters, Inc. (AEO)
AEO operates as a specialty retailer that provides clothing, accessories, and personal care products, aimed at the 15–25-year-old demographic. As of January 30, 2021, the company operated 901 American Eagle stores, 175 Aerie and two Todd Snyder stores across the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. The company also sells its products through its websites.
To advance its commitment to make the fashion industry more sustainable and environment friendly, AEO last month launched its new limited edition jean collection in conjunction with the Ellen MacArthur Foundation’s Jeans Redesign Project. The company will use more sustainable raw materials and manufacturing techniques and water reduction methods to make clothes that have limited impact, are recyclable and are long-lasting. The company reported that demand for American Eagle and Aerie brands accelerated in the first quarter, thus generating strong margins, higher full-priced selling and reduced promotions. AEO hopes this trend will continue in the coming months on increasing demand from mid-teens.
AEO’s total net revenue came in at $1.03 billion for its fiscal year 2021 first quarter, ended May 1, which represented an 87.5% rise year-over-year. The company’s gross profit increased 1441% year-over-year to $436.19 million. Its operating income is reported at $133.43 million for the quarter, compared to a $358.24 million loss in the prior-year period. AEO’s net income was $95.46 million, compared to a $257.16 million loss in the year-ago period. And its non-GAAP EPS is reported at $0.48, compared to a $0.84 non-GAAP loss per share in the year-ago period.
For the current quarter, ending July 31, 2021, analysts expect AEO’s EPS to be $0.52, up 1833.3% from the prior-year period. AEO surpassed consensus EPS estimates in each of the trailing four quarters. Analysts expect the stock’s revenue to be $1.20 billion, which represents a 36% rise from the prior-year period. The stock’s EPS is expected to grow at 7.7% per annum over the next five years. AEO ended yesterday’s trading session at $34.43, surging 248.1% over the past year. During the past nine months, the stock has plunged 169.4%.
AEO’s strong fundamentals are reflected in its POWR Ratings. It has an A grade for Momentum, and a B grade for Growth and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see AEO’s ratings for Value, Stability and Sentiment here. Of 65 stocks in the A-rated Fashion & Luxury industry, AEO is ranked #37.
Want More Great Investing Ideas?
MCD shares were unchanged in after-hours trading Wednesday. Year-to-date, MCD has gained 10.22%, versus a 12.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|MCD||Get Rating||Get Rating||Get Rating|
|BBY||Get Rating||Get Rating||Get Rating|
|AEO||Get Rating||Get Rating||Get Rating|