Retail Still Rolling - Zacks Industry Rank Analysis

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Industry Rank Analysis 11-15-11

Before you know it, Christmas will be here. That is something that tends to bring retail front and center to the minds of investors.

Rumors of the death of the U.S. consumer appear to be premature. Despite extremely low levels in the surveys of consumer confidence, people are still going out to shop. Personally I don't like to rely on those surveys, because what people say to the poll takers is often very different from what they actually do.

A wide variety of Retail industries are doing very well based on the Zacks Rank. In light of the second month in a row of surprisingly strong Retail Sales numbers, it looks like the retailers might continue to stay on top for a while.

Also in the third quarter, inventory growth was a drag on the economy, so the retailers are probably going into the all-important Holiday season with lean inventories and will not have to go on a price (and margin) slashing spree. For Retail Investors, this could be the season of Santa, not the Grinch this year.

Zacks Industry Classifications

The Zacks industry classifications are very fine, with 258 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well, a single firm with good news can propel a one or two firm industry to the top (or bottom) of the charts. It is interesting when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list.

The definition of size that matters here is not the total sales or market capitalization but the number of companies in the "industry." Honestly I think we cut the definitions of an "industry" too fine, but when 10 of the 15 groupings that make up what one thinks of as "Retail" overall are in the top 50, the story is pretty clear regardless of how small we make the groupings.

Retail Takes 6 of Top 20

There are six different Retail "industries" clustered in the top "20," although due to ties, the rankings jump from 18 to 32. Some of them are on the small side, with two of them having just four members. Others, including Drug Stores and Auto dealers are larger than average with 11 members. None of the ten "industries" saw an increase in its average Zacks Rank, although some slipped a few places in the ranking from last week.

If the Zacks Ranks were distributed randomly, one would expect that only 5% of the members of these "industries" would earn the coveted Zacks #1 Rank (Strong Buy). Instead, 16 of the total of 96 (16.7%) have earned that distinction. If it were random, only 15% would hold Zacks #2 Ranks (Buy) but actually 36, or 37.5%, hold it.

In terms of target shoppers, the firms range from those that cater to the very wealthy, such as the high-end department store chain Saks ( SKS ) to those that cater to a decidedly less affluent clientele such as Family Dollar ( FDO ). That would also probably hit sales at some of the mid-range stores such as Bed Bath & Beyond ( BBBY ) or Macy's ( M ) that currently hold number Zacks #1 Ranks.

There are a wide variety of Market Capitalizations to choose from on the two lists, ranging from mega-caps CVS-Caremark ( CVS ) and Target ( TGT ) down to sub-$100 million micro-caps. The valuations are for the most part what I would call reasonable: not compelling, but not at scary nose-bleed levels either. There are a few that I would be cautious about on a valuation basis, particularly on this year's earnings.

Also, while things are going well now, or at least much better than people had been anticipating (and the Zacks Rank is driven by the change in expectations and earnings surprises), I do remain worried about consumer spending in 2012. Unless Congress does something, the payroll tax cut that has been in effect for this year will expire on January first. For someone earning $50,000, that means $1,000 less in take home pay, and that will probably result in a lot less discretionary spending.

That will be a very big issue for the Retailers that either mostly cater to the middle to lower class customer, or which sell very discretionary items. Since the tax increase will max out at $2,134 (2% of the $106,700 limit on payroll tax collections), that will be much less of an issue for a firm like Saks. It could be a very serious issue for some of the stores with a poorer clientele, such as Dollar Tree ( DLTR ) and Big Lots ( BIG ).

One should, however, not make the mistake of thinking that a weak economy is bad for all retailers. For example, if people are not confident enough to buy a new car, it means they will be keeping their old jalopy on the road longer. That can only be good news for the auto parts stores like O'Reilly ( ORLY ) and Advance Auto ( AAP ).

The Zacks Rank is, however, better used as a short term timing/trading tool, not as a guide towards long-term investing. Its maximum impact comes in less than three months. Thus even if you agree that there will be substantial headwinds for the consumer next year, there may still be a good trade or two to be made.

Number 1 Ranked Firms

Company Ticker Market Cap ($ mil) P/E Using Curr FY Est P/E Using Next FY Est "%Ch Curr Fiscal Yr Est - 4 wks" "%Ch Next Fiscal Yr Est - 4 wks" "Current Price" Div Yield
Bed Bath&Beyond BBBY $13,186 14.38 12.56 0.18% 0.23% $52.90 0.00%
Macys Inc M $11,326 10.43 9.14 1.97% 2.62% $26.54 1.51%
Ross Stores ROST $8,603 13.69 12.34 1.20% 1.22% $73.56 1.20%
O Reilly Auto ORLY $8,045 16.19 14.27 0.61% 0.76% $58.35 0.00%
Tractor Supply TSCO $4,255 20.83 18.12 2.41% 1.94% $58.89 0.82%
Advance Auto Pt AAP $4,057 11.42 10.1 -0.37% -0.05% $52.94 0.45%
Ulta Salon Cosm ULTA $3,451 34.59 27.63 0.18% 0.62% $56.39 0.00%
Signet Grp Plc SIG $3,061 10.56 9.35 0.00% 0.00% $35.42 0.00%
Gnc Holdings GNC $2,194 18.43 15.78 9.08% 9.20% $24.36 0.00%
Sonic Automotve SAH $762 11.02 9.3 1.90% 1.50% $14.39 0.69%
Lithia Motors LAD $485 10.68 9.29 21.69% 23.33% $18.42 1.52%
Pharmerica Corp PMC $362 14.48 13.11 2.22% 0.00% $12.34 0.00%
Susser Hldgs Cp SUSS $282 15.63 14.55 3.28% 3.18% $16.19 0.00%
Conns Inc CONN $270 16.93 11.45 13.56% 30.41% $8.51 0.00%
Build-A-Bear Wk BBW $109 N/A 25.66 -55.56% 0.00% $5.56 0.00%
Travelcenters TA $83 14.9 5.78 0.00% 0.00% $4.62 0.00%


Number 2 Ranked Firms

Company Ticker Market Cap ($ mil) P/E Using Curr FY Est P/E Using Next FY Est "%Ch Curr Fiscal Yr Est - 4 wks" "%Ch Next Fiscal Yr Est - 4 wks" "Current Price" Div Yield
Cvs Caremark Cp CVS $46,305 12.31 10.77 -0.22% 0.25% $34.15 1.46%
Target Corp TGT $33,527 11.75 11.07 0.10% -0.02% $48.65 2.06%
Mckesson Corp MCK $18,532 12.11 10.74 1.59% 0.91% $75.31 1.06%
Cardinal Health CAH $14,069 13.15 11.69 0.95% 1.36% $40.13 2.14%
Autozone Inc AZO $11,585 14.54 12.64 0.00% 0.14% $278.74 0.00%
Best Buy BBY $9,542 7.26 6.86 0.09% 0.64% $25.52 2.35%
Dollar Tree Inc DLTR $7,681 16.15 14.09 0.19% 1.18% $62.82 0.00%
Family Dollar FDO $5,835 15.7 13.56 -0.28% -0.25% $48.53 1.48%
Petsmart Inc PETM $4,624 16.76 14.51 0.22% 0.34% $40.78 1.37%
Dicks Sprtg Gds DKS $3,903 16.71 14.35 0.04% -0.21% $32.49 0.00%
Williams-Sonoma WSM $3,414 14.69 13.02 0.06% 0.18% $32.66 2.08%
Sally Beauty Co SBH $3,098 16.71 14.36 0.00% 0.28% $16.90 0.00%
Big Lots Inc BIG $2,385 10.94 9.59 -0.20% 0.52% $31.73 0.00%
Penske Auto Grp PAG $1,777 12.03 10.61 4.42% 1.70% $19.18 0.36%
Cabelas Inc CAB $1,633 11.84 10.36 2.92% 3.48% $23.63 0.00%
Saks Inc SKS $1,537 28.01 19.38 1.68% 2.92% $9.40 0.00%
99 Cents Only NDN $1,268 15.51 13.9 0.63% 0.78% $18.00 0.00%
Pier 1 Imports PIR $1,153 12.4 10.56 0.31% 0.27% $9.89 0.00%
Rite Aid Corp RAD $1,068 N/A N/A 5.49% 0.73% $1.20 0.00%
Group 1 Auto GPI $1,019 11.98 10.43 13.52% 7.05% $42.44 1.04%
Hibbet Sports HIBB $979 18.37 16.18 0.00% 0.00% $35.83 0.00%
Rush Enterprise RUSHB $549 10.9 7.36 N/A N/A $14.49 0.00%
Ethan Allen Int ETH $527 20.83 13.56 0.00% -4.71% $18.30 1.53%
Hhgregg Inc HGG $443 8.65 7.37 -1.26% -1.02% $11.14 0.00%
Freds Inc FRED $436 12.93 11.02 -1.01% -0.71% $11.07 1.81%
Bioscrip Inc BIOS $326 22.26 12.52 0.00% 0.00% $6.01 0.00%
China Nepstar NPD $268 32.5 32.5 3.23% 3.23% $2.60 0.00%
Kirklands Inc KIRK $195 9.74 7.86 0.00% 0.00% $9.78 0.00%
Big 5 Sporting BGFV $166 10.94 8.63 -4.03% -4.58% $7.56 3.97%
Us Home Sys Inc USHS $36 9.52 7.17 0.00% 0.00% $4.95 1.21%

Click here for the Zacks Industry Rank List: http://www.zacks.com/zrank/zrank_inds.php
 
ADVANCE AUTO PT ( AAP ): Free Stock Analysis Report
 
BED BATH&BEYOND ( BBBY ): Free Stock Analysis Report
 
BIG LOTS INC ( BIG ): Free Stock Analysis Report
 
CVS CAREMARK CP ( CVS ): Free Stock Analysis Report
 
DOLLAR TREE INC ( DLTR ): Free Stock Analysis Report
 
FAMILY DOLLAR (FDO): Free Stock Analysis Report
 
MACYS INC (M): Free Stock Analysis Report
 
O REILLY AUTO (ORLY): Free Stock Analysis Report
 
SAKS INC (SKS): Free Stock Analysis Report
 
TARGET CORP (TGT): Free Stock Analysis Report
 
Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: AAP , BBBY , BIG , CVS , DLTR

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