Earlier this year, I urged investors to avoid Walmart (NYSE:WMT) stock, describing the world’s largest retailer “a dud,” noting that “rising wages and pricey acquisitions such as its $16 billion deal for Flipkart will hurt WMT’s profits for the foreseeable future.”
I argued that other retail stocks such as Target (NYSE:TGT) and TJX (NYSE:TJX) would be better places to invest your money. My call proved accurate. WMT stock has posted a 6% gain year-to-date. Meanwhile, TGT is up 22%, and TJX has surged 21%.
The purpose of this post, however, isn’t for me to boast about my prognostications. I decided to revisit the retail sector in light of the growing concern among Wall Street pundits about a slowdown in economic growth both in the U.S. and overseas. Here’s what I concluded.
WMT Stock Is Cheap For A Reason
First, WMT’s stock is cheap, trading at a 12% discount to the average 52-week price target of Wall Street analysts, which is $109.07. However, the retailer’s expenses rose more than 12% between 2015 and 2018, dwarfing the 3% gain in WMT’s revenue during the same time period. That situation isn’t going to change anytime soon.
According to analysts’ estimates, WMT stock’s EPS for the current fiscal year are expected to fall to $4.76 — compared to $4.91 a year earlier. Annual revenue is expected to rise 2.9%. Given WMT’s massive size, it will take a massive upside surprise to move the needle. The stock isn’t going anywhere.
Kohl’s May Surprise Investors
Expectations are even lower for Kohl’s (NYSE:KSS). Though Wall Street analysts are forecasting KSS stock’s EPS to rise to $6.05 in the current fiscal year, they are expecting flat revenue growth. Same-store sales are expected to jump by as much as 2% in the current fiscal year, according to KSS’s latest guidance. KSS can do better than these low expectations suggest.
The Wisconsin-based chain has mastered the art of giving consumers the bargains they crave. I am amazed by the deals that I can get thanks to the “Kohl’s Cash” consumers get with each purchase. Moreover, Kohl’s has entered into some innovative partnerships with Amazon.com (NASDAQ:AMZN) and Weight Watchers (NYSE:WTW). About the only bad news that I found about Kohl’s was its comments that sales were off to a slow start in February — mainly because of adverse weather.
Capri Holdings Takes a Fashionable Turn
Capri Holdings (NASDAQ:CPRI), the parent of luxury fashion brands including Michael Koors, Versace, and Jimmy Choo, is another retail stock that has gotten too cheap to ignore. CPRI shares have slumped more than 50 % over the past 5 years as the company struggled to keep up with the latest fashion trends. Sales of its flagship Koors brand slumped 1 % during the current quarter, hurt by accelerated declines in the watch and jewelry.
Wall Street analysts are skeptical about the company’s growth through acquisitions. Versace, for its part, is in need of a turnaround. CPRI has high hopes for the iconic brand, an aims to boost the brand’s revenue to $2 billion from $1 billion currently.
Wall Street analysts think CPRI stock has got plenty of gas. The shares are trading at a 32 % discount to the average 52-week price target of $60.96. It is truly a stock that’s too cheap to ignore.
Jonathan Berr has a small position in Walmart.