Nelson Hem, Benzinga Staff Writer
In a recent research report, analysts at UBS pointed to specialty retailers Home Depot (HD), Lowe's Companies (LOW) and Tractor Supply (TSCO) as moving into their prime selling season.
This is in contrast to the many retailers that have taken it on the chin lately, be it due to the unspectacular holiday season, the inclement weather this winter, or the ever expanding encroachment from online retailers such as Amazon.com.
Also note that, in their report, the UBS analysts liked auto parts and supplies retailers Advance Auto Parts and O'Reilly Automotive for many of the same reasons: the long winter has been rough on cars and spring will bring people out and about.
Below we take a look at how Home Depot, Lowe's Companies and Tractor Supply have fared and what analysts expect from them.
One analyst sees shares of the largest home improvement retailer in the United States going to $100, which would be a more than 20 percent gain from Tuesday's close. The company sports a market capitalization of more than $109 billion, with a dividend yield near 2.4 percent. Its long-term earnings per share (EPS) growth forecast is more than 16 percent.
The number of shares sold short in Home Depot surged about 90 percent in the most recent reporting period. That was the highest level of short interest since last July, but it was less than two percent of the total float. It would take more than three days to close out all short positions.
Of the 28 analysts who follow the stock surveyed by Thomson/First Call, 19 recommend buying shares. Their mean price target, or where the analysts think the share price will go, is more than 11 percent higher than the current share price. That consensus target would be a new multiyear high.
Shares have retreated less than four percent in the past month, down to the level of the 50-day moving average. But they are still trading more than 13 higher than a year ago. The stock has outperformed Lowe's over the past six months, but it has underperformed the broader markets in that time.
This rival to Home Depot saw an upgrade recently from an analyst who cited expectations that sales will improve as the winter weather fades. The company has a market cap near $51 billion, and its dividend yield is about 1.5 percent. The long-term EPS growth forecast is more than 16 percent, and the return on equity is almost 30 percent.
The short interest in Lowe's was less than two percent of the float as of mid-March, but that was essentially the same number of shares as in the previous period. It was also down more than 17 percent from the year-to-date peak in January. The days to cover rose to more than three in the most recent period.
Seven of 26 polled analysts rate the stock at Strong Buy, and eight more also recommend buying shares. A move to their mean price target would be a more than eight percent gain for shareholders. Here too the consensus target represents a new multiyear high for the stock.
The share price is about the same as at the beginning of the year, after pulling back more than two percent in the past month. It is still above the 50-day moving average. Over the past six months, the stock not only underperformed Home Depot and the S&P 500, but Walmart as well.
The largest rural lifestyle retail store chain in the United States announced the opening of its 1,300th store in March and aims to reach 2,100. The company has a market cap near $10 billion and a dividend yield around 0.7 percent. Its long-term EPS growth forecast is almost 17 percent, and the return on equity is more than 28 percent.
After increasing by almost a third in early March, the number of Tractor Supply shares sold short had reached its second highest level so far this year. That represented more than three percent of the total float. The days to cover doubled to about five, the most since January.
Slightly more than half of the 27 surveyed analysts recommend buying shares and the rest rate them at Hold. The analysts feel shares have some headroom as their mean price target is more than six percent higher than the current share price. But note that shares traded higher than that as recently as January.
Shares are about eight percent lower year to date, but still north of the 50-day moving average. The share price is up more than 37 percent from a year ago. Over the past six months, the stock has outperformed Lowe's but underperformed the broader markets.
At the time of this writing, the author had no position in the mentioned equities.
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