Expected Sales Growth Drives Upside in Retail Stocks (COST, WMT, TGT, M, JWN, KSS, BBY)

An unexpected gain in October retail sales has boosted prospects for a better-than-forecast holiday retail sales season. Some of the sales gains will come from lower pricing, which can’t always be counted on to raise revenue and profits. Selling more for less doesn’t always do the trick.

But brick-and-mortar retailers are getting some help from an unexpected quarter this season. Customers are using mobile devices — smartphones mostly, but some tablets as well — to compare prices right on the sales floor. A few stores are equipping salespeople with mobile devices of their own in order to check availability and price as well as competitive offers. A retailer that can meet or beat a competitor’s price on the spot might capture a sale that otherwise would have been lost. It is indeed a brave new world of retailing out there.

We’re taking a look at seven retailers today: Costco Wholesale Corp. (NASDAQ: COST), Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Macy’s Inc. (NYSE: M), Nordstrom Inc. (NYSE: JWN), Kohl’s Corp. (NYSE: KSS), and Best Buy Co. Inc. (NYSE: BBY).

All data from Yahoo! Finance, with current prices gathered at around noon today.

Costco Wholesale Corp. (NASDAQ: COST) has a median price target of $89.00 from 21 brokers. The current share price is $81.99, for a potential upside of $7.01, or 8.6%. The company pays a dividend yield of 1.2% and the forward P/E is 18.49. Costco has performed at or above expectations for a while now, and shares are pretty fully valued. The target price is above the 52-week high, which indicates that analysts are expecting the company to continue performing well, but Costco’s share price has risen just 1% since mid-October and its target price was raised less than 1%.

Wal-Mart Stores Inc. (NYSE: WMT) has a median target price of $62.50 from 18 brokers. The current share price is $56.96, for a potential upside of $5.54, or 9.7%. The company pays a dividend yield of 2.6%, and its forward P/E is 11.57. Walmart’s most recent quarter included some growth in US sales, which is something that has been missing for a while now. The company has put up a new 52-week high since mid-October, its share price has risen 3%, and its target price was raised by nearly 6% in the same time period. That combination would indicate that investors and analysts like what they see — and expect more of the same.

Target Corp. (NYSE: TGT) has a median target price of $60.00 from 21 brokers. The current share price is $52.78, for a potential upside of $7.22, or 13.7%. The company pays a dividend yield of 2.3% and its forward P/E is 12.03. Target’s target price has risen about 2.6% since mid-October and its share price has gained 6% in the same period. Unlike either Costco or Walmart, the company’s target price is still below its 52-week high.

Macy’s Inc. (NYSE: M) has a median target price of $36.00 from 17 brokers. The current share price is $30.79, for a potential upside of $5.21, or 16.9%. The company pays a dividend yield of 1.3% and its forward P/E is 9.7. Macy’s target price has risen about 2.9% since mid-October and its share price is up about 6% in the same period. Macy’s has also posted a new 52-week in the last five weeks, and the target price is still about 10% above that new high. Macy’s doubled EPS expectations in its most recent quarter, although gross margins fell -0.6%. The company’s high-end Bloomingdale’s stores should give it a boost through the holiday shopping season due to a significant expected increase in sales this year.

Nordstrom Inc. (NYSE: JWN) has a median price target of $54.00 from 20 brokers. The current share price is $46.17, for a potential upside of $7.83, or 17%. The company pays a dividend yield of 2% and its forward P/E is 12.79. The company’s target price was raised nearly 2% since mid-October, but the share price today is about -7% lower than it was then. The company has posted a new 52-week high of $53.35 since mid-October, but is trading some -13% below that number today. Nordstrom missed sales estimates in the third quarter, although EPS was in-line. With other retailers looking more attractive, Nordstrom’s shortcomings are magnified.

Kohl’s Corp. (NYSE: KSS) has a median price target of $62.00 from 19 brokers. The current share price is $54.42, for a potential upside of $7.58, or 13.9%. The company pays a dividend yield of 1.8% and its forward P/E is 10.33. Of the companies in this group, Kohl’s is the only one to have had its price target lowered. The drop was -11%, and still nearly 6.5% above the stock’s 52-week high. Kohl’s beat estimates for its third quarter and bumped its forecast numbers for the fourth quarter and the full year. Competition has got to be the reason for the lowered targets and the declining stock price.

Best Buy Co. Inc. (NYSE: BBY) has a median target price of $28.00 from 18 brokers. The current share price is $26.35, for a potential upside of $1.65, or 6.3%. The company pays a dividend yield of 2.4%, and its forward P/E is 6.72. Best Buy’s target price has been lifted by about 3.7% since mid-October. The share price is also about 3% higher, but the stock is so far from its 52-week high of $45.63 that this is a case of being so far down that everything looks like up.

Surprisingly, perhaps, of the seven stocks in this group Walmart appears to offer the best chance of realizing the implied upside in its share price. A lot depends on the company’s ability to increase traffic in its US stores, and to make sure those customers buy something.

Paul Ausick