Retail

After the Fall: Retail Stocks Upside Potential Remains (COST, WMT, TGT, M, KSS, JCP, GPS, LTD, AEO, ANF, TJX, DG)

Retailers have fared better than many other sectors over the past year, with the majority of share prices having risen although price to book values remain negative. Thus, either the sector is undervalued or there is something amiss.

When the stores reported first quarter earnings, the preponderance of guidance pointed to slower sales in the second quarter likely based on sales pulled forward into the first quarter due to warm weather. But it could be the case that falling gasoline prices are giving sales a lift in May that could continue through June. According to the latest report from Retail Metrics, retailers are on track to post a comparable store sales gain of 3.6% in May, excluding the negative effect of lost sales at Walgreen Co. (NYSE: WAG) due to its being dropped by pharmacy benefits management firm Express Scripts Inc. (NASDAQ: ESRX).

We looked at a dozen retailers with an eye toward discerning value opportunities for investors: Costco Wholesale Corp. (NASDAQ: COST), Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Macy’s Inc. (NYSE: M), Kohl’s Corp. (NYSE: KSS), J.C. Penney Company Inc. (NYSE: JCP), Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Inc. (NYSE: ANF), The TJX Companies Inc. (NYSE: TJX), and Dollar General Corp. (NYSE: DG).

Costco Wholesale Corp. (NASDAQ: COST) traded at $84.14 and has a market value of around $37 billion. The consensus target price from Thomson Reuters is $86.83 and the 52-week range is $70.22-$92.10. Costco has a dividend yield of 1.3%. The implied upside to the consensus target is just 3%, and we would note that the target is below the 52-week high.

Wal-Mart Stores Inc. (NYSE: WMT) traded at $64.65 and has a market value of around $220 billion. The consensus target price from Thomson Reuters is $65.28 and the 52-week range is $48.31-$64.88 (new high set today). Walmart has a dividend yield of 2.5%. The implied upside to the consensus target is barely 1%, but we would note that the target is still above the 52-week high.

Target Corp. (NYSE: TGT) traded at $56.84 and has a market value of around $38 billion. The consensus target price from Thomson Reuters is $63.65 and the 52-week range is $45.28-$58.95. Target has a dividend yield of 2.1%. The implied upside to the consensus target is 12%, and we note again that the target is above the 52-week high.