Amid lingering inflation, the National Retail Federation believes Americans will likely spend more from their savings to buy holiday gifts. Jill Gonzalez, an analyst at personal finance website WalletHub, said, “Consumers are pretty much spending more and buying less.”

Despite the inflationary pressures, retail sales in the U.S. have remained stable. Shoppers are showing continued resilience, with U.S. retail sales rising 1.3% in October, the biggest monthly gain since February and better than expected. Also, data from Bank of America shows consumers have been resilient in 2022 and are poised to start 2023 similarly. Moreover, holiday shopping is picking up.

According to Statista, retail sales in the United States are projected to reach $4.86 trillion in 2022, increasing $53 billion year-over-year. Investors’ interest in retail stocks is evident from the SPDR S&P Retail ETF’s (XRT) 8.1% gains over the past month.

Given this backdrop, quality special retailer stock Murphy USA Inc. (MUSA) could be an ideal buy this winter. However, fundamentally weak Party City Holdco Inc. (PRTY) might be best avoided now.

Stock to Buy:

Murphy USA Inc. (MUSA)

MUSA engages in marketing retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.

MUSA’s forward EV/Sales of 0.36x is 67% lower than the industry average of 1.09x.

Its trailing-12-month ROCE of 83.48% is 545.92% higher than the industry average of 12.92%. Its trailing-12-month ROTA of 16.06% is 267.9% higher than the industry average of 4.36%.

MUSA’s total operating revenues came in at $6.19 billion for the third quarter that ended September 30, 2022, up 34.7% year-over-year. Moreover, its net income came in at $219.5 million, up 111.1% year-over-year. Also, its EPS increased 133.2℅ year-over-year to $9.28.

MUSA’s revenue is expected to increase 37% year-over-year to $23.78 billion in 2022. Its EPS is expected to increase by 88.1% year-over-year to $28.07. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 56.3% to close the last trading session at $288.17.

MUSA’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MUSA has a B grade for Growth, Value, and Quality. In the Specialty Retailers industry, it is ranked #2 out of 47 stocks. Click here for the additional POWR Ratings for Momentum, Sentiment, and Stability for MUSA.

Stock to Avoid:

Party City Holdco Inc. (PRTY)

PRTY designs, manufactures, sources, and distributes party items worldwide. The business is divided into two segments- retail; and wholesale. 

In terms of forward EV/EBIT, PRTY is currently trading at 43.32x, 251% higher than the industry average of 12.34x. Its forward EV/Sales multiple of 1.22 is 11.48% higher than the industry average of 1.09.

PRTY’s trailing-12-month net income margin of negative 11.9% compares with the 5.05% industry average. Its trailing-12-month EBITDA margin of negative 2.40% is significantly lower than the 11.05% industry average.

PRTY’s net sales came in at $502.19 million for the third quarter that ended September 30, 2022, down marginally year-over-year. Its gross profit came in at $158.45 million, down 13.7% year-over-year. Moreover, its loss from operations came in at $153.53 million, compared to an income of $20.05 million in the year-ago period.

Analysts expect PRTY’s revenue to decrease marginally year-over-year to $2.14 billion in 2022. Its EPS is estimated to decline 300% year-over-year to negative $1.36 in 2022. Over the past year, the stock has lost 91.7% to close the last trading session at $0.50.

PRTY’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The stock also has an F grade for Stability and a D for Momentum, Sentiment, and Quality.

PRTY is ranked #46 in the same industry. Click here for the additional POWR Ratings for PRTY (Growth and Value).

MUSA shares were trading at $285.42 per share on Monday afternoon, down $2.75 (-0.95%). Year-to-date, MUSA has gained 43.99%, versus a -15.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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