Unless you live in a vacuum, it’s an easy guess that one of the fastest growing ethnic demographics in the United States is Hispanic. In fact, Hispanic individuals make up about 18% of the U.S. population, so they are an extremely important consumer group for American companies. In fact, they are such a dynamic and growing part of the population that there are 18 metropolitan statistical areas (MSAs) where they make up 50% or more of the population.
In a recent research report, Jefferies notes that numerous companies reported weaker Hispanic spending when reporting second-quarter results. The analysts suggest that the macro economic backdrop is likely not the cause, but the cloud around immigration policy could be. While policy may be subject to some change, they feel spending is set to rebound, and they focus on six companies that could be the big beneficiaries.
Here are the six companies that could good a boost from renewed Hispanic spending this fall and into the busy holiday selling season. All are rated Buy at Jefferies.
ELF Beauty
This company had a hot initial public offering last year and has come back big-time for investors looking to add shares. ELF Beauty Inc. (NYSE: ELF) offers products for eyes, lips and face to consumers through its retail customers and its stores and e-commerce channels. The company offers a range of products for eyes, such as eye shadow, eyeliner, mascara and eyelashes, as well as eyebrows, concealer and primer, brushes and tools, and sets and palettes.
The company sells its products in national and international retailers (with international primarily serviced by distributors) and direct-to-consumer channels. It sells its products in retail stores in the United States across mass, drug store, food and specialty retail channels. The analysts estimate that 24% of the company’s consumers are Hispanic.
The Jefferies price target for the shares is $30, while the Wall Street consensus target is $31.22. The stock traded at $19.80 Wednesday morning.
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Jack in the Box
This company is a top fast-food offering for traders and investors to consider. Jack in the Box Inc. (NASDAQ: JACK) operates and franchises Jack in the Box restaurants, one of the nation’s largest hamburger chains, with more than 2,200 restaurants in 21 states and Guam. Additionally, through a wholly owned subsidiary, the company operates and franchises Qdoba Mexican Eats, a leader in fast-casual dining, with more than 600 restaurants in 47 states, the District of Columbia and Canada.
Jack in the Box is a favorite for Hispanic diners, and the analysts noted this in the report:
The company saw a 4% decline in overall traffic in the June quarter, and 53% of the stores are in MSAs with 25% or more Hispanic mix. Jack in the Box has likely already been pressured by this Hispanic exposure; The analyst believes some recently elevated costs are temporary, and notes same-store-sales improvement at the company.
Shareholders receive a 1.65% dividend. Jefferies has a $120 price objective, and the consensus target is $111.93. Shares were last seen trading at $96.90.
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O’Reilly Automotive
This is a great consumer stock to own, as consumers will want their vehicles in top shape for the fall. O’Reilly Automotive Inc. (NASDAQ: ORLY) is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells its products to both DIY and professional service provider customers.
Its product line includes new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control, chassis parts, driveline parts and engine parts; maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and accessories, such as floor mats, seat covers and truck accessories.
The report said:
O’Reilly has 25% of stores in Texas and California, and while the market fears structural issues, we believe the slowdown seen thus far is more driven by weather and cyclical factors. The company noted that the third quarter is off to a “strong” start.
The $248 Jefferies price target compares with the consensus target of $227.70. Shares traded early Wednesday at $197.80.
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Ulta Beauty
If there is any stock to own in the retail sector, this may be the one, and the Latina customer is very important for sales. Ulta Beauty Inc. (NASDAQ: ULTA) is a holding company for the Ulta Beauty group of companies. The company offers cosmetics, fragrance, skin, hair care products and salon services. It offers approximately 20,000 products from over 500 beauty brands across all categories, including its own private label. The company also offers a full-service salon in every store, featuring hair, skin and brow services.
Ulta Beauty operates approximately 970 retail stores across 48 states and the District of Columbia and also distributes its products through its website, which includes a collection of tips, tutorials and social content. The company offers makeup products, such as foundation, face powder, concealer, color correcting, face primer, blush, bronzer, contouring, highlighter, setting spray, shampoos, conditioners, hair styling products, hair styling tools and perfumes.
The Jefferies price target is a stunning $350. The consensus price objective is $318.32, and shares were last seen at $232.20.
Walmart
This giant retailer has done very well since bouncing off lows for the year in January. Wal-Mart Stores Inc. (NYSE: WMT) operates retail stores in various formats worldwide, including discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, cash and carry stores, home improvement stores, specialty electronics stores, restaurants, apparel stores, drug stores and convenience stores. It also operates via retail websites, such as Walmart.com and SamsClub.com.
Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. With fiscal year 2016 revenue of $482.1 billion, Walmart employs approximately 2.2 million associates worldwide.
The analysts noted:
Wal-Mart didn’t specifically cite weakness in Hispanic spend on their latest call, but ~20% of store locations are in states where over 1/3 of the population is Hispanic Texa, Californian and New mexico and an improvement in spend could help comps. According to IntelliBev and NPD group, nearly 1 in 3 C-Store transactions is made by a customer of Hispanic descent.
Shareholders receive a 2.55% dividend. Jefferies has a $93 price target. The posted consensus target is $82.37. Shares traded at $80.30.
Foot Locker
This athletic shoe retailer has been hammered and may be offering the best entry point in some time. Foot Locker Inc. (NYSE: FL) is a specialty athletic retailer that operates 3,419 stores in 23 countries in North America, Europe, Australia and New Zealand. It operates Foot Locker, Footaction, Lady Foot Locker, Kids Foot Locker, Champs Sports, SIX:02, Runners Point and Sidestep retail stores, as well as direct-to-customer channels, including Eastbay.com, FootLocker.com and SIX02.com.
Foot Locker investors receive a 3.74% dividend. The whopping $61 Jefferies price target is well above the consensus target of $42.89 The stock traded recently at $33.90.
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All these stocks offer investors significant value at current trading levels. Any boost in Hispanic spending for the rest of 2017 could add to overall sales and revenues and drive stock prices higher.
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