Thanks to the ongoing holiday season, the retail industry is in a sweet spot. Furthermore, the recent inflation data showing a decline from last year's peaks will most likely encourage consumers to open their wallets.

In such a scenario, three industry players, Target Corporation (TGT), Murphy USA Inc. (MUSA), and Kingfisher plc (KGFHY), appear well-equipped to capitalize on the industry prospects.  

While high inflation has posed challenges for consumer budgets throughout the year, there is a notable sense of optimism. The Consumer Price Index (CPI) reported a 0.1% increase in November, marking a 3.1% rise from the previous year.

Although the monthly rate signaled an increase from the stagnant CPI reading in October, the annual rate demonstrated a decrease after reaching 3.2% in the preceding month. On top of it, the Fed left interest rates unchanged in its latest meeting and signaled multiple cuts in 2024.

Moreover, concerns about economic uncertainty have prompted retailers to entice shoppers with more substantial discounts this year. For instance, the cost of online apparel was 9% lower throughout October compared to the month's start, whereas in 2021 and 2022, the reduction was only 2% and 5%, respectively, as indicated by Adobe Analytics.

Similarly, the price of furniture was 5% lower throughout October compared to the beginning of the month, in contrast to the marginal price decreases of 1% and 2% in 2021 and 2022, respectively.

Due to these substantial holiday discounts, online sales in October experienced a $4.30 billion increase compared to the previous year, reaching a total of $76.80 billion. Meanwhile, according to Adobe Analytics, from November 1 to November 27, shoppers spent $109.30 billion online, marking a 7.3% increase from the previous year.

Furthermore, a survey reveals that almost half (49%) of U.S. holiday shoppers intend to complete the majority of their holiday shopping this month. The data further indicates that 53% of consumers aged 50 or younger plan to accomplish all or most of their shopping in December, while 44% of shoppers aged 50 or older share the same sentiment.

Overall, the retail industry is buzzing with optimism, fueled by the holiday season and easing inflation. Considering that nearly half of the U.S. population intends to engage in shopping this month, it could be an opportune time to consider owning the shares of TGT, MUSA, and KGFHY.

That said, let us now delve deeper into the fundamentals of the aforementioned stocks in detail:

Target Corporation (TGT)

TGT operates as a general merchandise retailer in the United States, offering apparel, shoes, beauty and personal care products, baby gear, paper products, and pet supplies. In addition, the company provides dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, and food service.

On December 10, TGT paid its shareholders a quarterly dividend of $1.10 per share. The company’s annual dividend of $4.40 translates to a 3.18% yield on the prevailing prices, while its four-year average dividend yield is 2.12%.

Its dividend payouts have grown at CAGRs of 17.6% and 11.6% over the past three and five years, respectively. Also, TGT has a record of 55 years of consecutive dividend growth.

TGT’s trailing-12-month Return On Common Equity (ROCE) of 30.87% is 164.3% higher than the 11.68% industry average. Its trailing-12-month cash per share of $4.14 is 142.7% higher than the industry average of $1.70. Furthermore, the stock’s trailing-12-month asset turnover ratio of 1.91x is 128.9% higher than the 0.84x industry average.

In the fiscal third quarter, which ended on October 28, 2023, TGT’s sales amounted to $25 billion, while its operating income rose 28.9% year-over-year to $1.32 billion. Additionally, the company’s net earnings came in at $971 million and $2.10 per share, representing increases of 36.4% and 35.5% from the prior-year quarter, respectively.

Street expects TGT’s revenue and EPS for the fiscal fourth quarter (ending January 2024) to increase 1.3% and 26.3% year-over-year to $31.81 billion and $2.39, respectively. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

TGT’s revenue has grown at CAGRs of 6.5% and 7.2% over the past three and five years, respectively. Likewise, its total assets have improved at a CAGR of 3.5% over the past three years.

Over the past month, TGT’s shares have surged 28.9% to close the last trading session at $138.38.

TGT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

It has a B grade for Value, Momentum, and Sentiment. In the 38-stock A-rated Grocery/Big Box Retailers industry, it is ranked #20. Click here to see TGT’s ratings for Growth, Stability, and Quality.

Murphy USA Inc. (MUSA)

MUSA engages in the marketing of retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.

On December 1, MUSA paid its shareholders a quarterly dividend of $0.41 per share. The company’s annual dividend of $1.64 translates to a 0.45% yield on the prevailing prices, while its four-year average dividend yield is 0.36%. Its dividend payouts have grown at a CAGR of 83.7% over the past three years.

The stock’s trailing-12-month ROCE of 65.15% is 471.3% higher than the 11.40% industry average. Its trailing-12-month cash per share of $5.87 is 152.9% higher than the industry average of $2.32. Furthermore, MUSA’s trailing-12-month asset turnover ratio of 4.64x is 366.5% higher than the 0.99x industry average.

For the fiscal third quarter, which ended on September 30, 2023, MUSA’s total operating revenues amounted to $5.79 billion, while its income from operations came in at $247.30 million.

During the same period, the company’s net income and EPS amounted to $167.70 million and $7.69, respectively. Also, its cash and cash equivalents stood at $124.80 million, up 106.3% compared to $60.50 million as of December 31, 2022.

The consensus EPS estimate of $6.09 for the fiscal fourth quarter (ending December 2023) represents a 16.3% increase year-over-year. The consensus revenue estimate of $5.22 billion for the same quarter reflects a 5.4% year-over-year improvement.

Over the past three years, MUSA’s revenue and EBIT have grown at CAGRs of 24.7% and 13.6%, respectively. Meanwhile, during the same period, its net income and levered FCF have improved at CAGRs of 24.1% and 13%, respectively.

MUSA’s shares have soared 48% over the past nine months to close the last trading session at $361.62.

MUSA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the 44-stock Specialty Retailers industry, it is ranked #7. Click here to see the other ratings of MUSA for Growth, Momentum, Stability, and Sentiment.    

Kingfisher plc (KGFHY)

Headquartered in London, the United Kingdom, KGFHY supplies home improvement products and services through its stores and e-commerce channels internationally. The company operates retail stores under the B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint, and Koçtas brands. 

The stock’s trailing-12-month gross profit margin of 36.51% is 2.9% higher than the 35.47% industry average. Its trailing-12-month CAPEX/Sales of 3.27% is 7.7% higher than the industry average of 3.04%. Furthermore, KGFHY’s trailing-12-month asset turnover ratio of 1.06x is 6.9% higher than the 0.99x industry average.

For the six-month period, which ended on July 31, 2023, KGFHY’s sales and gross profit increased marginally year-over-year to £6.88 billion ($8.64 billion) and £2.49 billion ($3.13 billion), respectively.

Moreover, the company’s profit for the period and EPS amounted to £237 million ($297.46 million) and 12.2p, respectively. In addition, its cash and cash equivalents stood at £344 million ($431.76 million), up 20.3% compared to £286 million ($358.96 million) as of January 31, 2023.

Analysts predict KGFHY’s revenue for the fiscal period ending January 2024 to increase 2.7% year-over-year to $16.39 billion, while its EPS for the same period is expected to come in at $0.56. Moreover, its EPS is projected to improve by 4.2% per annum over the next five years.

KGFHY’s revenue has grown at CAGRs of 4.7% and 2.3% over the past three and five years, respectively. Also, its net income and EPS have improved at CAGRs of 29.6% and 32.9% over the past three years, respectively.

The stock has gained 3.8% year-to-date to close the last trading session at $5.86.

It’s no surprise that KGFHY has an overall rating of B, which equates to a Buy in our proprietary rating system. It has a B grade for Growth, Value, and Stability. In the 57-stock B-rated Home Improvement & Goods industry, it is ranked #16. 

In addition to the POWR Ratings we’ve stated above, we also have KGFHY ratings for Momentum, Sentiment, and Quality. Get all KGFHY ratings here.

What To Do Next?

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TGT shares were trading at $141.95 per share on Thursday afternoon, up $3.57 (+2.58%). Year-to-date, TGT has declined -1.68%, versus a 25.09% rise in the benchmark S&P 500 index during the same period.

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