Retailers have fared better than many other sectors over the past year, with the majority of share prices having risen although price to book values remain negative. Thus, either the sector is undervalued or there is something amiss.

When the stores reported first quarter earnings, the preponderance of guidance pointed to slower sales in the second quarter likely based on sales pulled forward into the first quarter due to warm weather. But it could be the case that falling gasoline prices are giving sales a lift in May that could continue through June. According to the latest report from Retail Metrics, retailers are on track to post a comparable store sales gain of 3.6% in May, excluding the negative effect of lost sales at Walgreen Co. (NYSE: WAG) due to its being dropped by pharmacy benefits management firm Express Scripts Inc. (NASDAQ: ESRX).

We looked at a dozen retailers with an eye toward discerning value opportunities for investors: Costco Wholesale Corp. (NASDAQ: COST), Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Macy’s Inc. (NYSE: M), Kohl’s Corp. (NYSE: KSS), J.C. Penney Company Inc. (NYSE: JCP), Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Inc. (NYSE: ANF), The TJX Companies Inc. (NYSE: TJX), and Dollar General Corp. (NYSE: DG).

Costco Wholesale Corp. (NASDAQ: COST) traded at $84.14 and has a market value of around $37 billion. The consensus target price from Thomson Reuters is $86.83 and the 52-week range is $70.22-$92.10. Costco has a dividend yield of 1.3%. The implied upside to the consensus target is just 3%, and we would note that the target is below the 52-week high.

Wal-Mart Stores Inc. (NYSE: WMT) traded at $64.65 and has a market value of around $220 billion. The consensus target price from Thomson Reuters is $65.28 and the 52-week range is $48.31-$64.88 (new high set today). Walmart has a dividend yield of 2.5%. The implied upside to the consensus target is barely 1%, but we would note that the target is still above the 52-week high.

Target Corp. (NYSE: TGT) traded at $56.84 and has a market value of around $38 billion. The consensus target price from Thomson Reuters is $63.65 and the 52-week range is $45.28-$58.95. Target has a dividend yield of 2.1%. The implied upside to the consensus target is 12%, and we note again that the target is above the 52-week high.

Macy’s Inc. (NYSE: M) traded at $37.74 and has a market value of around $16 billion. The consensus target price from Thomson Reuters is $44.37 and the 52-week range is $22.66-$42.17. Macy’s has a dividend yield of 2.2%. The implied upside to the consensus target is 17.6%, and we note again that the target is above the 52-week high.

Kohl’s Corp. (NYSE: KSS) traded at $49.74 and has a market value of around $12 billion. The consensus target price from Thomson Reuters is $56.26 and the 52-week range is $42.14-$57.39. Kohl’s has a dividend yield of 2.6%. The implied upside to the consensus target is 13%, and we note again that the target is below the 52-week high.

J.C. Penney Co. Inc. (NYSE: JCP) traded at $27.28 and has a market value of around $6 billion. The consensus target price from Thomson Reuters is $33.29 and the 52-week range is $23.44-$43.18. Penney’s has a dividend yield of 3%. The implied upside to the consensus target is 22%, and we note again that the target is (well) below the 52-week high.

Gap Inc. (NYSE: GPS) traded at $27.04 and has a market value of around $13 billion. The consensus target price from Thomson Reuters is $29.71 and the 52-week range is $15.08-$29.23. Gap has a dividend yield of 1.9%. The implied upside to the consensus target is almost 10%, and we note again that the target is (slightly) above the 52-week high.

Limited Brands Inc. (NYSE: LTD) traded at $46.00 and has a market value of around $13 billion. The consensus target price from Thomson Reuters is $49.50 and the 52-week range is $31.43-$51.84. Limited has a dividend yield of 2.2%. The target price is below the 52-week high, which the company posted earlier this month. Shares are fully valued here if the analysts are right.

American Eagle Outfitters Inc. (NYSE: AEO) traded at $19.80 and has a market value of around $4 billion. The consensus target price from Thomson Reuters is $23.19 and the 52-week range is $10.00-$21.13. American Eagle Outfitters has a dividend yield of 2.2%. The implied upside to the consensus target is 17%, and we note again that the target is above the 52-week high.

Abercrombie & Fitch Co. (NYSE: ANF) traded at $35.43 and has a market value of around $3 billion. The consensus target price from Thomson Reuters is $51.65 and the 52-week range is $34.45-$78.25. A&F has a dividend yield of 2%. The implied upside to the consensus target is 46%, and we note that the target is well below the 52-week high.

The TJX Companies Inc. (NYSE: TJX) traded at $41.24 and has a market value of around $31 billion. The consensus target price from Thomson Reuters is $45.89 and the 52-week range is $24.60-$42.81. TJX has a dividend yield of 1.1%. The implied upside to the consensus target is 11%, and we note again that the target is above the 52-week high.

Dollar General Corp. (NYSE: DG) traded at $47.43 and has a market value of around $16 billion. The consensus target price from Thomson Reuters is $52.53 and the 52-week range is $29.84-$48.76. Dollar General does not pay a dividend. The implied upside to the consensus target is 11%, and we note again that the target is above the 52-week high.

The store with the highest implied gain is Abercrombie and Fitch, while the lowest implied gain is posted by Walmart. But A&F trades well below the stock’s 52-week high and is down nearly -53% over the past year, while Walmart shares have gained 18% in the same period. Walmart appears to be fully valued, and A&F appears to have problems.

Shares in American Eagle and Gap are both up about 43% on the year, and American Eagle’s potential upside is 17% while Gap’s is 22%. TJX shares are up nearly 53% in the past year and Dollar General’s are up 44% and both show a potential upside of 11%.

Putting together share price growth over the past year and remaining potential upside, both American Eagle and Gap appear to offer the best value investment option. American Eagle, with a low price-to-book ratio of 2.74 and a higher dividend yield gets the final nod.

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Paul Ausick

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