4 Red-Hot Mega-Retailers Ready for a Big Summer Selling Season

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That time of year is almost upon us, with schools in the south letting out in a couple of weeks, and those up north not far behind, the busy summer driving and vacation season is right around the corner. With earnings across the country rising and the economy appearing to be in much better shape than in the past five years, consumer spending could be poised to jump. While higher prices at the gas pump could crimp things some, most on Wall Street are pretty positive on the overall outlook for retail.

In two recent Merrill Lynch reports, the make the case that consumer spending for lower income consumer is actually outpacing that of middle and higher income consumers. It indeed bodes well for the overall purchasing picture if consumers feel good about spending now.

The analysts noted this:

Consumer confidence remains near its highest levels in 17 years while small business optimism is the highest on record. Revolving and non-revolving consumer credit growth remains healthy at 5%+. Personal interest payments (excludes mortgages) as a percentage of disposable personal income continues to rise from depressed levels with room for significant upside and the Financial Obligations Ratio continues to move up, but is at depressed levels that imply room for a significant increase in big ticket purchases over the next several years.

The analysts continue with their “Discount Store Decade” thesis, and they have six top pick stocks that make the cut. Here we focus on the four biggest companies. All are rated Buy at Merrill Lynch.

Costco Wholesale

This has become the ultimate destination for the American consumer regardless of the economy. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses and the company buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth. With consumers having more free cash to spend with gasoline prices still low, this major retailer may continue to see large revenue gains.

Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model could bode well for international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations.

Wall Street loves the company’s pricing authority on key items and the leading merchandising offerings, and the company’s relatively new Costco co-branded card with Visa is a real positive. Add in the company’s growing online presence, and the future looks bright.

Costco shareholders are paid a 1.17% dividend. The Merrill Lynch price target on the shares is $230, and the Wall Street consensus price objective was last seen at $210.13. The stock was trading early Thursday at $196.00 a share, and its 52-week trading range is $150.00 to $199.88.