Is the Good News for Malls and Retail Already Priced In as 2020 Nears?

After more than just a challenging 2020, many people are looking forward to 2021 being a better year. The election will be over, the COVID-19 vaccine is expected to be widespread, unemployment is supposed to keep improving, and people are expected to resume their life by going back to retail establishments.

Shouldn’t all of this add up to a great time to own the retail sector? That may all depend on what part of retail you are talking about. It’s also possible that all or most of the good news has become priced into certain parts of retail. Perhaps the biggest concern in retail is what will happen to the malls and mall-based retailers.

24/7 Wall St. has been monitoring the recent moves in some of the top mall-based plays. Some have surged, some have been under pressure. It turns out that some are now even back to where they would have been without a recession after massive recoveries from the panic-selling lows seen earlier this year.

Some investors look for growth and some choose value stocks with dividends. This puts valuations into the mix and there may be reason to believe that most of the good news has become priced into the top stocks in these sectors. This is also a time when some concerns around spiking COVID-19 cases, at least some less raid expectations of when the public will get its coronavirus vaccines, and when some states are becoming more aggressive about shutdowns again.

Macy’s Inc. (NYSE: M) is a retailer that remains in need of something new. What that is remains to be seen, and this key holiday season is expected to generate a mere 8-cents per share of earnings with a 22% drop in sales to $6.5 billion. Whether or not Macy’s can see the 18% expected recovery in sales back to $20 billion in 2021 and whether it can achieve the $0.74 in earnings per share remains to be seen. Macy’s has seen its shares recover 150% from the lows of 2020, and at $11.50 investors are valuing the stock almost $4.00 higher than Refinitiv’s $7.81 consensus target price.

Kohl’s Corp. (NYSE: KSS) may have standalone stores rather than only being attached to malls, and they recovered as the stores reopened for business. Kohl’s is also looking to launch more athleisure brand focused in-house sales. What looks odd is that at $40.00 its shares have nearly tripled off the $10.89 low this year. Kohl’s also has a $32.88 consensus analyst target price. The spike in the number of COVID-19 cases seemed to limit customers from wanting to flock to malls and crowded areas.

Nordstrom, Inc. (NYSE: JWN) is having trouble despite being one of the last exclusive upscale mall-based retailers that is still public. The stock price of $32.50 has also recovered about 200% from its $11.72 low this year and is now significantly higher than its $22.79 consensus analyst target price. Still, the hope for some investors is that it can recapture the $43.37 high in 2021.

Nordstrom is expected to have a 21% drop in fourth quarter holiday-driven sales, and its consensus estimates of -$4.19 EPS and a 32% drop is sales to $10.7 billion make the focus all about 2021. Estimates for next year point to $1.48 EPS and a 26% sales recovery to $13.5 billion. Perhaps its greatest problem now is that the stock has doubled just since early in November.

Simon Property Group, Inc. (NYSE: SPG) has seen 2 fresh downgraded based on different metrics. The independent research firm Argus downgraded SPG to Hold from Buy on December 2, thus removing its target price. At $90.11, it is still trading against a 52-week range of $42.25 to $150.12 and the Refinitiv consensus target price is $88.38. If its business is going to get better, and as a REIT, some focus may have to go back to its dividend that was cut earlier this year.

Simon Property Group saw its Long-Term Issuer Default Ratings at Fitch downgraded to ‘A-‘ from ‘A’ this week, and the rating outlook is Negative. The new view is that SPG’s credit metrics will remain weak from the stress on its department store and apparel retailer tenant roster as well as from the majority debt-funded Taubman transaction.

Fitch’s Negative outlook on SPG reflected continued cash flow pressures due to more store closures, further retail bankruptcies and secular trends shifting tenants toward greater customer accessibility locations such as street-facing stores or open-air centers. And unlike the prior decade, limited pricing power of mall landlords is seen in rent negotiations.

Abercrombie & Fitch Co. (NYSE: ANF) has many mall-based stores and it is closing 7 of its flagship locations. The stores are said to equate to 10% of its square footage and only about 1% of its total revenues. With a $21.86 price, the shares have a consensus analyst target price of $22.36 and a 52-week range of $7.42 to $23.82. Its market cap is just $1.3 billion.

The Gap, Inc. (NYSE: GPS) was last seen trading close to $21.50, but while its analysts have an average target of $24.50 the 52-week range is $5.26 to $26.99. Its stock was clobbered on November 25, and there are still questions about how it will or will not be able to unlock value as it had previously decided to scrap the Old navy spin-off and as the Athleta brand has more appeal in the athleisure trends that are winning.

While NIKE, Inc. (NYSE: NKE) has standalone stores and went on its own for online sales, NIKE sales may face a hurdle as it was named along with Macy’s and Gap as having UPS delivery delays after soaring Cyber Monday demand has led to UPS sticking limits to how many packages it can deliver. NIKE shar3es bottomed at about $60 in 2020 but have since surged to a record price of $140. Analysts have chased up their numbers and the consensus price target is just $145.65, although some analysts have significantly higher targets. That said, the Dow’s apparel and accessories leader is now valued at about 48-times this year’s earnings estimate and about 38-times the coming year’s earnings estimate.

Another sector that has seen a massive recovery is the restaurant sector. Some of the restaurants that rely on in-store patrons have even seen their stocks recover just about all of their losses. That’s another story.

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