2 Retail Titan Stocks Investors Can Buy – September 8, 2022

At the end of the summer, there will be a few retailers who won’t be left behind as the holiday season approaches. From cosmetics to clothing, consumers will be adding to their shopping list as Thanksgiving and the Christmas season approach.

Let’s take a look at two stocks with loyal customer bases and upward earnings estimate revisions that look like inflation-fighting titans.

lululemon ((LULU Free report) )

As we transition into fall, products from apparel and apparel giant Lululemon are sure to make their way onto consumers’ wish lists. Lulu’s clothing assortment includes shorts and tops, as well as fitness pants and jackets that will be popular in the cooler months.

Lululemon currently sports a Zacks Rank #2 (Buy) with upward EPS rating revisions. LULU recently blew second-quarter earnings expectations by 18% with earnings of $2.20 per share. This provided an additional catalyst for the stock. Lululemon is an inflation-fighting stock, as the company has not seen a slowdown in consumer spending. In fact, second-quarter sales rose 5% to $1.86 billion. Third-quarter sales are also expected to rise 24% year-over-year to $1.80 billion.

Full-year earnings are now expected to rise 26% this year to $9.81 per share, according to Zacks estimates. Full-year 2023 earnings are expected to climb 16%. Revenue growth also continues to increase. Sales are now expected to grow 26% in 2022 and another 14% in FY23 to $9.06 billion. Additionally, LULU has exceeded earnings expectations for nine consecutive quarters.

Year-to-date, LULU is up 12% while the S&P 500 is down 16%. As the upward revisions to estimates suggest, there could still be even more upside potential. Lululemon’s Zacks average price target of $390.04 offers a 14% upside from current levels.

Image source: Zacks Investment Research

Image source: Zacks Investment Research

Despite rising 12% year-to-date, LULU is still 30% off its 52-week highs seen last November. Even with its most recent rally, Lululemon’s forward P/E is still below its five-year high of 94X and its median of 40.4X. LULU’s forward P/E of 34.3X is well above the industry average of 10.7X. However, Wall Street has been willing to pay for the athleisure company’s impressive growth. Upward revisions to estimates continue to support investors who are willing to pay a premium for LULU.

The company’s long-term prospects also remain strong, with international expansion being a key pillar of Lululemon’s “Power of Three x2 Growth Plan”. CEO Calvin McDonald said the plan calls for LULU’s business to quadruple from 2021 levels by the end of 2026. Lululemon’s revenue in Europe grew 22% on a one- and three-year CAGR basis . Lululemon now operates 40 stores and five websites in Europe.

McDonald’s also highlighted the strength of LULU’s loyal, high-income customers, with in-store traffic up 30% in the second quarter without the help of markdowns or price promotions.

Ultimate Beauty ((ULTA Free report) )

Ulta offers a wide range of products ranging from cosmetics and fragrances to skin and hair care. Ulta also caters to consumers looking for bath and body products.

Ulta’s stock has done well this year compared to its peer group which is down 32%. ULTA, on the other hand, is up 8% year-to-date to beat the benchmark. Over the past five years, ULTA is up a very respectable 95%, compared to 80% for the S&P 500.

ULTA recently hit 52-week highs at $448.29 per share and appears poised for higher highs, with its Zacks average price target offering a 10% upside. ULTA has a forward P/E of 20.7X while the industry average is 12.5X.

Even after hitting 52-week highs, we can see on the nearby chart that ULTA’s P/E is still well below its five-year high of 80.7X and the median of 25.2X.

Zacks Investment Research
Image source: Zacks Investment Research

Additionally, next year’s earnings are expected to rise 9% to $23.37 per share, according to Zacks estimates. Sales in fiscal 2022 are expected to increase 13% this year and another 7% in fiscal 23 to $10.57 billion. Ulta has seen sales growth for eight consecutive quarters.

Rising earnings estimates indicate that Ulta Beauty products will likely continue to remain staples for consumers heading into the holiday season. ULTA has an overall “B” VGM rating and currently earns a #1 Zacks rank (Strong Buy).

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