Amazon.com Inc. (NASDAQ: AMZN) is probably the most incredible U.S. corporate success story of the past 25 years — maybe even the last 100 years. Some on Wall Street have predicted the company will enter everything from pharmaceutical distribution to the world of artificial intelligence. The technology mega-giant rules retail and is the leader in the cloud computing, and the recent purchase of Whole Foods Market thrust it right into the brick-and-mortar retail business.
While the thought of Amazon world domination, especially in retail, is prevalent, the fact is the company can’t rule and control everything. A new Jefferies research report makes the case that certain softline retailers have the ability to fend off Amazon’s massive reach, and the report noted this:
We identified 7 key factors that should help companies build a protective moat around their businesses, and then also identified 4 key ‘offensive’ initiatives that should help further thwart Amazon’s rise. Based on this framework, we think the most insulated companies include (1) Strong brands that are destinations for the consumer with differentiated fashion product, as well as handbag retailers, and (2) Those that are best executing in marrying the digital and physical retail experience.
Four companies that are Buy rated at Jefferies are all good candidates to be able to ward off Amazon’s massive capabilities, and all are solid additions to long-term growth portfolios.
American Eagle Outfitters
This top retail stock had been acting much better since bouncing off lows posted in late August. American Eagle Outfitters Inc. (NYSE: AEO) is a leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products at affordable prices under its American Eagle Outfitters and Aerie brands.
The company operates more than 1,000 stores in the United States, Canada, Mexico, China, Hong Kong and the United Kingdom, and it ships to 81 countries worldwide through its websites. American Eagle Outfitters and Aerie merchandise also is available at 119 international stores operated by licensees in 18 countries.
Top Wall Street analysts have highlighted that the company offers among the clothing sector’s best denim execution and on-trend fashion, and those positives could drive traffic upside, as well as be long-term drivers of international, Aerie, digital and omni inventory. Good execution, solid inventory control and the trend for old-school denim fashions are all positives.
Jefferies is very positive on the shares and noted this:
American Eagle Outfitters boasts a high e-commerce penetration (well over 20% of sales) and has been seeing strong growth in this channel. Importantly, e-commerce is not dilutive to the overall business, so the company should be able to maintain, if not improve profitability as it further leverages its omni channel capabilities.
Investors are paid a solid 3.10% dividend. The Jefferies price target for the shares is $18, and the Wall Street consensus target is $14.06. Shares traded early Wednesday at $16.15.
This top retailer could be poised to benefit from the extra consumer spending in a growing economy. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix.
The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.
Gap has been red-hot lately, and the Jefferies report noted this:
The company is well-positioned in the shifting retail landscape, as its e-commerce business is actually accretive and the company has already done the heavy lifting on omni-channel integration. They were among the first to market with find in store, reserve in store, ship from store, and order in store, and are amidst the rollout of the Buy online, pickup in-store or BOPIS, which should help drive even higher profitability online.
Gap shareholders receive a 2.76% dividend. Jefferies has a $41 price target. The posted consensus target is $28.68, but the stock traded at $33.50 Wednesday morning.