Retail
Jefferies Sees 4 Great Undervalued Opportunities in Consumer Growth Sector
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If the U.S. gross domestic product is so heavily dominated by consumer spending, it should be no mystery why so much effort revolves around that spending. The research team at Jefferies has decided to highlight many key takeaways that value growth across consumer spending — most importantly, where they see the big opportunities for investors now.
Jefferies screened for earnings before interest, tax, depreciation and amortization (EBITDA) growth of 10% or more within its consumer coverage. The analysts benchmarked that on an enterprise value over EBITDA (EV/EBITDA) and compared it to the EBITDA growth. The firm’s highest valuation names had store growth of 14% or more (a total of only nine companies). Then they looked for strong same-store sales, where comparable sales were 5% or higher, which yielded only six companies. They also found six companies tied to the consumer where total sales (online, same-store, existing store) were 20% or higher, plus an outlook for sustainable growth.
What was interesting here is that the lowest valuation names and laggards since the market turned up on February 11, 2016, actually garnered the most interest from Jefferies’ analysts. There were 53 companies reviewed in total, and these were the four names on which Jefferies went into great detail.
In the restaurants sector, Jefferies said that earnings growth visibility (or potential for upside) will be key. The firm currently prefers companies trading at a valuation discount, or those companies with a labor advantage to protect against what likely will be a more challenging wage environment.
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