The COVID-19 pandemic delivered a severe blow to most retail companies that were focused on solely providing goods and services through their physical retail stores. The fast effects of the public health crisis left many retailers scrambling to effectively serve customers through e-commerce platforms. Digital and Omni channel retailers have shifted more easily, but retailers that prioritized physical stores and face-to-face engagement over Omni channel strategies have struggled to respond to the crisis. However, the shift to online platforms has been driving solid growth in the e-commerce market, which is expected to grow at a CAGR of 22.9% from 2020 to hit $16,215.6 billion by 2027.
Furthermore, as the technology continues to improve and companies employ artificial intelligence (AI) enabled technologies on their platforms or increase the use of AR/VR to attract more consumers, the industry is expected to thrive in the coming quarters. Investors interest in this space is in-part evident in the Amplify Online Retail ETF’s (IBUY) 145.9% returns over the past year, compared to SPDR S&P 500 ETF Trust’s (SPY) 47.6% gains over this period.
Given this favorable backdrop, we think it is wise to buy the shares of established retail companies Walmart Inc. (WMT), Target Corporation (TGT), and Best Buy Co., Inc. (BBY), which have strong e-commerce platform.
Walmart Inc. (WMT)
Starting as a single discount store in 1945, WMT has become one of the largest retailers in the world. The company operates through three segments—Walmart U.S., Walmart International, and Sam’s Club. It operates roughly 10,500 stores and clubs under 48 banners across 24 countries and has a strong e-commerce presence.
On March 11, the company hosted a live stream shopping event—Spring Shop-Along: Beauty Edition–on its Walmart TikTok channel. This gave the TikTok community the opportunity to shop for items featured in creator content directly in the app without having to leave the platform. With the help of such initiatives, the company is increasing its consumer base.
WMT’s revenue increased 7.5% year-over-year to $152.30 billion for fiscal 2021 fourth quarter, ended January 31, 2021. The company’s U.S. e-commerce sales increased 69% with strong results across all channels. Its operating profit grew 3.4% year-over-year to $5.50 billion. And its adjusted EPS for the quarter came in at $1.39 compared to $1.34 in the prior-year period.
Analysts expect WMT’s EPS and revenue to increase 8.7% and 3.2%, respectively, year-over-year in its fiscal year 2023. It surpassed Street’s EPS estimates in three of the trailing four quarters. The stock has gained 6.5% over the past year and closed yesterday’s trading session at $137.91.
WMT’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Stability, and a B grade for Value, Sentiment, and Quality. Within the A-rated Grocery/Big Box Retailers industry, WMT is ranked #5 of 40 stocks.
To see the additional POWR Ratings for WMT (Growth and Momentum), click here.
Target Corporation (TGT)
A general merchandise retailer, TGT has roughly 1,909 stores across the United States and operates 44 distribution centers. It sells its products through its stores and through digital channels also. The company offers food assortments that include perishables, dry groceries, dairy, frozen items, and apparel, accessories, home décor products, electronics, toys, seasonal offerings, food, and other products.
On April 19, TGT launched a new installment of its limited-time-only Designer Dress Collection that featured three celebrated designers—ALEXIS, Christopher John Rogers and RIXO. TGT made the collection available on Target.com and in select stores. As the company expands its product offerings, it should also be able to reach a wider audience.
TGT’s comparable sales grew 20.5% year-over-year in its fiscal year 2020 fourth quarter, ended January 30. This reflected 6.5% in comparable traffic growth year-over-year and a 13.1% year-over-year increase in average traffic. Its digital comparable sales increased 118%, accounting for two-thirds of the company’s overall comparable growth. Its adjusted EPS came in at $2.67, up nearly 58% year-over-year.
For the current quarter ending April 30, 2021, analysts expect TGT’s EPS and revenue to increase 250.8% and 11.7%, respectively, year-over-year. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 88.9% over the past year and closed yesterday’s trading session at $203.63.
TGT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It also has an A grade for Quality, and a B grade for Growth and Value.
We have also graded TGT for Momentum, Stability, and Sentiment. Click here to access all TGT’s ratings. TGT is ranked #4 in the Grocery/Big Box Retailers industry.
Best Buy Co., Inc. (BBY)
BBY provides technology products, services and solutions through its stores and websites under BestBuy, Best Buy Business, Best Buy Express, Best Buy Health, CST, Geek Squad, GreatCall, and Lively brand names, among others. The company operates through two segments—Domestic and International. Its product offerings include computing and mobile phones, wearables and consumer electronics.
The company piloted a new membership program, Best Buy Beta, in April 2021, that provides customers with a wide range of benefits, such as exclusive member pricing, unlimited Geek Squad technical support, up to two years of protection on most product purchases, free standard shipping and delivery, and free installation on most products and appliances. This could significantly increase BBY’s customer base given the added benefits.
BBY’s revenue increased 11.4% year-over-year to $16.93 billion for the quarter ended January 30, 2021. Its operating profit grew 6.8% year-over-year to $1.03 billion, while its net earnings increased 9.5% year-over-year to $816 million. The company’s EPS also increased 9.1% year-over-year to $3.10.
For the quarter ending April 30, 2021, analysts expect BBY’s EPS and revenue to increase 94% and 24.5%, respectively, year-over-year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 62.8% over the past year and closed yesterday’s trading session at $117.02.
It’s no surprise that BBY has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Momentum and Quality, and a B grade for Value.
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WMT shares were trading at $138.70 per share on Tuesday afternoon, up $0.79 (+0.57%). Year-to-date, WMT has declined -3.38%, versus a 12.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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