There was an enormous amount of hope as we started the new decade in January. The economy was booming, unemployment for minorities and women was at the lowest level in 50 years and the constant drum of war in the Middle East seemed to be slowing. While President Trump has more than his share of detractors, his basic approval ratings were solid. That all came crashing down, along with the stock market, as the novel coronavirus spread like wildfire.
Now toss in the protests that have wracked American cities, with some of the worst rioting and looting since the 1960s, and many on Wall Street think a flight to the suburbs is a given. While things around the country seem to be quieting down, many city dwellers have seen enough and apparently, according to surveys, have had enough as well.
A new Jefferies report makes the case that change is already happening and will continue in the coming years as renters abandon city life to buy homes in the suburbs. The report noted:
We see outflows from crowded cities as population density and public transportation reliance are less favored post-COVID. Our framework and historical precedents put NYC in the crosshairs, though over 50% of urban dwellers elsewhere would also relocate if remote working is allowed. Our survey of 1,000 city dwellers reinforces our conviction, with 23% planning a move to the suburbs within 18 months and 42% more likely to move due to COVID versus 20% less likely. Plus, more urbanites are browsing real estate sites and homes in less-dense areas are trending.
Make no mistake, this trend could be huge for some of the top big-box retailers. Jefferies analysts are raising price targets on some of the biggest Buy-rated stocks in their retail coverage universe.
The need for the electronics and gear to set up a work-from-home office could be a huge tailwind for this leading retailer. Best Buy Inc. (NYSE: BBY) is the top specialty retailer of consumer electronics. The company operates about 1,000 stores in the United States, primarily big-box Best Buy locations, and over 200 stores in Canada and Mexico. The company also offers a variety of high-margin services, through its Geek Squad and Magnolia home theater channels, as well as a recent expansion into connected health and emergency services for seniors through its purchase of GreatCall.
Best Buy said it would soon allow customers to “safely and freely shop” at most of its stores without an appointment, while bringing back some 9,000 furloughed employees. On June 15, more than 800 locations allowed limited numbers of shoppers inside, although it will enforce social distancing rules and keep locations at 25% capacity. The move comes as Best Buy also begins to offer in-home consultations again, which were suspended in March in favor of digital alternatives.
Investors receive a 3.28% dividend. The Jefferies target price for the shares was raised to $95 from $90. The Wall Street consensus price target is just $86.53. BestBuy stock closed Monday at $84.78, up well over 4% on the day.
Floor and Decor
Jefferies team continues to view this company as a beneficiary of the move to the suburbs by city dwellers. Floor and Decor Holdings Inc. (NYSE: FND) initial concept focused on buyouts of product but has since evolved to direct.
The stores carry all major categories of hard flooring (tile, wood, laminate and stone), along with decorative items and the accessories needed to complete a project. Some 40% of sales are to do-it-yourselfers and 60% are to pros. The company currently operates 84 stores and is targeting 400+ stores over the long term.