Retail
Jefferies Says Amazon Retail Doesn't Work: Buy These 4 Stocks Instead
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For years as Amazon.com Inc. (NASDAQ: AMZN) grew, skeptics on Wall Street said brick-and-mortar stores were doomed. The easy convenience of looking online and ordering was too dominant, and the end was near. While there is no question that Amazon dominates e-commerce, the reality is, especially with apparel and footwear, that consumers often want to try on items before purchasing to see if they fit, the colors and style are right and more. That’s hard to do on the internet.
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In a new research report, Jefferies analysts feel that owning solid retail names is probably the best way for investors to be in the space. The report said this:
Amazon just announced the closure of all 87 pop-up stores. The company announced they intend to close their pop-up stores, and instead transition to focus on their bookstores and 4-star shops. We do not believe these will be successful, as the company lacks expertise in physical retail fulfillment.
In addition, with the consumer sentiment staying strong as employment and earnings have headed higher, the prospects for the sector look solid. The analysts also noted this:
The consumer is very strong and is not being price sensitive. Retail fundamentals are solid (even with bad weather impacting the first quarter); outlook for industry margins is still up from here while cash flows are strong and getting stronger. The group is cheap, under-owned, and the threat posed by Amazon is overemphasized, in our view.
The analysts suggest dumping food and overpriced consumer staples stocks and buying retail. We screened the Jefferies universe and found four companies that look like solid picks now. All are rated Buy.
Gap
This top retailer could be poised to benefit from continued extra consumer spending, and it is the top pick at Jefferies. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix.
The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.
The recent announcement to the spin-off the Old Navy brand was greeted well by Wall Street. The remaining company, which still needs a name, will consist of the namesake Gap brand, Athleta and Banana Republic, plus a couple of lesser known brands. It will have annual revenues of about $9 billion, compared to Old Navy’s $8 billion, the company stated.
Gap shareholders are paid a solid 3.63% dividend. The Jefferies price target for the shares is $50, though the Wall Street consensus target is much lower at $29.50 The stock closed trading on Thursday at $26.72 a share.
Kohl’s
This top retailer recently posted outstanding quarterly results. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States that offer private label, exclusive and national brand apparel, footwear, accessories, beauty and home products to children, men and women customers. The company also sells its products online at Kohls.com and through mobile devices.
While many retail chains have suffered some from internet pressure, Kohl’s has held its own as consumers see the company as a solid discount retailer. In an ironic turn, Amazon is still growing its partnership with the department store chain. Last summer, the two companies announced that Kohl’s would begin selling Amazon devices, such as the Echo and Fire tablets, at 10 of its stores. Kohl’s will be accepting Amazon.com returns at certain U.S. locations as well.
Investors in Kohl’s are paid a 3.89% dividend. Jefferies has a stunning $95 price target, and the posted consensus target is much lower at $76. The stock closed trading at $68.97 on Thursday.
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Planet Fitness
While this company offers a somewhat different play on the sector, it is well liked on Wall Street. Planet Fitness Inc. (NYSE: PLNT) is one of the largest and fastest-growing franchisers and operators of fitness clubs in the United States, with over 1,600 clubs (95% franchise) and 12.1 million members.
Planet Fitness offers a high-quality fitness, non-intimidating experience at a compelling value that targets the underserved roughly 80% of U.S. population that is currently not a member of a fitness club. Planet Fitness also sells fitness equipment to its franchisees.
In addition, the company recently posted strong results, gave solid guidance and will continue buying back shares. Plus, Planet Fitness announced it has increased the pace of its franchise openings to reflect the stronger franchisee base and more real estate availability.
The $75 Jefferies price target compares with the consensus target last seen at $66.33. The shares closed most recently at $63.89 apiece.
24/7 Wall St.Under Armour
This apparel leader has struggled mightily over the past few years and looks to finally be turning the corner. Under Armour Inc. (NYSE: UAA) bills itself as the originator of performance footwear, apparel and equipment that has revolutionized how athletes across the world dress. Designed to make all athletes better, the brand’s innovative products are sold worldwide to athletes at all levels.
The Under Armour Connected Fitness platform powers the world’s largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal.
The Jefferies analysts have remained very positive on the company, in the past citing the fact that it has the lowest market capitalization among the top athletic retail stocks, sales and margins are moving higher and overall better management of the business is a huge positive.
Jefferies has set its price target at $28. The consensus target is a stunningly low $15.28, and the stock ended the day on Thursday at $21.65 per share.
These four top companies should continue to perform well even in the face of the competition from Amazon. Jefferies has maintained for some time that the Amazon retail model is not as good as many brick-and-mortar players, and the firm continues to hold that opinion.
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