Wall Street has dived deep into the corporate reaction to tax reform. But what about the consumer impact?
According to a Feb. 22 note from Jefferies, consumer spending is poised for a boom following the December passage of the Tax Cuts and Jobs Act.
Jefferies pointed out that the consumer has de-levered their personal balance sheets, healthcare cost growth has slowed and, thanks to tax reform, Americans will have a smaller tax bill and subsequently more income to take home.
"Wage growth is well below the levels seen in past cycles and that weak wage growth has been accompanied by debt pay-down and a continued rise in healthcare costs as a percentage of spend, but that's changing," analysts noted. "Retail sales have faced a number of headwinds over the last several years, but with after tax incomes set to improve, healthcare spend as a percentage of personal consumer expenditures flattening and consumer debt service ratios now sitting at close to the lowest levels in 40 years, there's a good argument for better income translating to better retail sales going forward."
Retail sales have already grown post-tax reform. According to the National Retail Federation, holiday sales grew 5.5%, the fastest rate since the financial crisis a decade ago. Jefferies analysts predict retail sales will grow 4% in 2018, which would be the best growth rate in four years.
"Of course, Amazon should benefit from consumer tailwinds, too. Though our analysts believe some stocks overly discount the Amazon threat, meaning that current timing could be particularly opportune for some of these stocks, we certainly acknowledge that Amazon and other internet stocks will benefit from a better consumer," Jefferies said.
Here are the rest of the retail and consumer stocks set to benefit from an uptick in spending: eBay Inc. (EBAY) , Eldorado Resorts Inc. (ERI) , Expedia Inc. (EXPE) , Ford Motor Co. (F) , Fiat Chrysler Automobiles (FCAU) , General Motors Co. (GM) , The Gap Inc. (GPS) , The Home Depot Inc. (HD) , Kohl's Corp. (KSS) , Lowe's Cos. Inc. (LOW) , The Priceline Group Inc. (PCLN) , Penn National Gaming Inc. (PENN) , Red Robin Gourmet Burgers Inc. (RRGB) , Scientific Games Corp. (SGMS) , Under Armour Inc. (UAA) , Ulta Beauty Inc. (ULTA) , and Zoe's Kitchen Inc. (ZOES) .
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