The retail industry has been facing significant challenges in recent years, with last year’s market selloff and this year’s continued struggles. However, there may be opportunities for savvy investors in certain retail stocks. Discount retailers like Costco, Walmart, and Ollie’s Bargain Outlet have shown promise, while Target and Dollar General have also attracted attention from analysts. Investors are advised to approach retail stocks selectively, considering factors such as exposure to essential goods and potential for financial turnaround.
Key Points
1. Retail stocks have underperformed in the broader market due to rising prices, interest rates, and stagnant e-commerce activity. However, analysts suggest that value retailers that focus on essential products may outperform.
2. Target Corporation has experienced a selloff, but analysts see it as a buying opportunity. The company is expected to have profit growth and has announced an increase in its quarterly dividend, giving the stock a higher forward yield compared to the sector average.
3. Dollar General Corp. has also seen a selloff, but some analysts believe it is overdone. The company has consistently posted revenue growth and has a high concentration of essential goods, suggesting that improved economic conditions will benefit its financial results. The stock is trading at a discounted valuation compared to its historical average.Last year’s market selloff has severely impacted the retail industry, and it continues to face challenges even this year. However, Wall Street analysts believe it may be time to consider investing in selective retail stocks. Discount retailers offering essential goods, such as food and cleaning supplies, seem better positioned to outperform. This article examines two retail stocks, Target Corporation (NYSE: TGT) and Dollar General Corp. (NYSE: DG), which have recently experienced selloffs but are potentially attractive opportunities for investors.
Target Stock Oversold
Target Corporation’s stock fell to a nearly three-year low due to tepid second-quarter guidance and ongoing macro headwinds affecting comparable store sales growth. However, despite the short-term challenges, the retailer is expected to record profit growth for the first time since 2021’s fourth quarter. The consensus estimate suggests a 310% year-over-year jump in earnings per share (EPS), with sequential profit growth expected as the holiday shopping season approaches. Cost-cutting measures and efficiency initiatives further contribute to Wall Street’s optimism about Target’s longer-term outlook. Bernstein considers the recent selloff as a buying opportunity, giving the retailer a Street-high price target of $183, implying a 37% upside potential from the current stock price. Moreover, Target’s recent increase in its quarterly dividend, marking the 52nd consecutive year of dividend hikes, offers an attractive 3.3% forward yield, surpassing the sector average.
The Dollar General Selloff
Dollar General Corp., a discount retailer, experienced a significant selloff after missing first-quarter expectations and reducing its full-year outlook. The company’s lower-income customer base is facing pressure from factors such as higher food prices, the expiration of pandemic-related Supplemental Nutrition Assistance Program (SNAP) increases, and the end of the child tax credit. J.P. Morgan views the selloff as overdone and included Dollar General in its analyst focus list, setting a $187 price target. On the other hand, Barclays considerably lowered its target to $165. Unlike many retailers, Dollar General has consistently achieved revenue growth over the past seven quarters, despite having a more economically-sensitive customer base. This indicates that as economic conditions improve and inflation cools, the company’s financial results are likely to improve. Additionally, Dollar General’s emphasis on essential goods, which account for approximately 80% of total sales, should support healthy store traffic. With a current trading price of 16 times this year’s EPS estimate and a dividend yield of 1.4%, this discounted retail stock may be an attractive consumer rebound play.
Conclusion
While the retail industry continues to face challenges, certain discount retailers with exposure to essential goods have shown resilience and potential for growth. Target Corporation and Dollar General Corp. have recently experienced selloffs, but Wall Street analysts believe that they present attractive opportunities for investors. A longer-term outlook, positive earnings growth projections, and dividend increases make Target an enticing investment option. Dollar General’s ability to maintain revenue growth despite economic conditions, coupled with its focus on essential goods, suggests potential for improved financial results as economic conditions stabilize further. Investors should consider the current discounted prices and potential rebound for these retail stocks when making their investment decisions.
Note: This article is for informational purposes only and should not be taken as financial advice. It is always recommended to do thorough research and consult with a financial advisor before making investment decisions.
