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TheStreet Open House

3 Buy-Rated Retail Stocks to Binge on Black Friday

NEW YORK (TheStreet) -- Wall Street investors have recently been voicing concern about retail stocks, worried about a shorter-than-usual holiday shopping season and a generally mixed economic picture. Retailers, the argument goes, could get less-than-expected sales over the next six weeks.

Credit Suisse isn't buying the doomsday scenarios. Concerns, they argue, may be much ado about nothing.

"On the surface, the implications for retailer sales, gross margins and expenses do not seem rosy," wrote Credit Suisse analyst Gary Balter in a report. "Just as we witnessed last year, all the hype does not necessarily spell trouble for Hardline retailers. Take doorbusters for example. While a handful of screaming deals are well advertised to consumers, retailers in our space are being more selective on what is promoted overall. Last year we observed deep discounts on fewer items with moderate discounts on a greater number of items. The illusion of a deal could actually help sales while preserving margins."

So retailers should be alright. But which will trump the competition? Macy's (M), Wal-Mart (WMT) and Bed, Bath & Beyond (BBBY) could be perfect additions to shopping carts this Black Friday. Thanks to Thanksgiving Parade promotion and earlier-than-ever-before opening times, these retailers are slated to draw critical foot traffic away from competitors and reap the rewards this holiday season.

Each has seen strong stock performance through 2013. Macy's is up 36.7%, Wal-Mart has added 18.4% and Bed, Bath & Beyond has led the gains, up 40.4%. Comparatively, the S&P 500 has added 26.71% over the year and the Consumer Discretionary SPDR (XLY), an ETF of consumer stocks, is up 37.9%.

TheStreet Ratings team rates Macy's Inc as a Buy with a ratings score of A. The team has this to say about their recommendation:

"We rate Macy's Inc (M) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, increase in stock price during the past year, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • M's revenue growth has slightly outpaced the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 3.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 25.28%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year. Regarding the stock's future course, although almost any stock can fall in a broad market decline, M should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Macy's Inc has improved earnings per share by 30.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Macy's Inc increased its bottom line by earning $3.29 a share vs. $2.91 a share in the prior year. This year, the market expects an improvement in earnings ($3.88 vs. $3.29).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Multiline Retail industry average. The net income increased by 22.1% when compared to the same quarter one year prior, going from $145 million to $177 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Multiline Retail industry and the overall market, Macy's Inc's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.

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