3 retail stocks to consider buying now

With 61% of shares in Zacks’ retail and wholesale sector beating earnings expectations, there are a number of companies investors might want to start paying attention to.

The sector is currently home to several prominent Zacks industries, comprised of businesses that supply food, medicine, internet commerce, consumer electronics, restaurants, apparel/footwear, and jewelry.

Let’s take a look at three highly rated retail stocks that investors should seriously consider buying.

Dillard’s DDS

Department store operator Dillard’s Inc (DDS) was added to the Zacks Rank #1 (Strong Buy) list this week after recently smashing its fiscal third quarter earnings expectations. Earnings estimate revisions began to rise after the company’s impressive third-quarter results. DDS posted a 125% earnings surprise with EPS at $10.86 per share, up 12% from Q3 2022.

Besides its fashion apparel and home furnishings chains that coincide with its website, the company has a wholly-owned real estate investment trust (REIT) and a captive insurance company. This diversification has helped manage risk more effectively and improve liquidity, which has helped the stock hold up much better than the broader market and most major retail and regional stores this year.

As we approach the holiday shopping season, regional retail department stores are currently in the top 8% of over 250 Zacks Industries. Dillard’s earnings are now expected to rise 3% in its 2023 fiscal year to $41.39 per share.

FY23 earnings estimates are broadly up after the DDS beat third-quarter expectations. FY2024 earnings are expected to drop -39% after a very difficult year to track. However, FY24 earnings estimates also rose over the past 30 days to $25.10 per share from $22.83 per share.

Year-to-date, DDS is now up +53% to crush the -18% S&P 500 and blow up the retail and regional department store markets -7%. Dillard’s performance has been outstanding as it has continued to cement itself as a retail leader over the past two years, growing an impressive +723% including its dividend to easily beat the index benchmark and +121% for its Zacks sub-industry.

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Despite the stellar run, DDS has remained fairly valued considering its exponential growth and massive profits. Trading around $375 per share, DDS has a forward P/E of 8.7X. This corresponds to the industry average. Even better, DDS is still trading at a discount to its decade high of 45.8X and sits well below the 12.3X median.

TravelCenters of America TA

TravelCenters of America (TA) is a name in the Zacks retail and convenience store industry that investors should consider buying. The industry is currently in the top 2% and TA sports a Zack Rank #1 (Strong Buy) with rising EPS estimate revisions.

The company operates as a national chain of full-service travel centers in the United States, with locations nationwide serving hundreds of thousands of professional drivers and other highway travelers each month.

TA’s revenue is expected to climb 120% to $9.03 per share in 2022, according to Zacks estimates. Fiscal 2023 earnings are expected to drop -48% after an impressive year. That being said, FY23 earnings estimates rose to $4.67 per share from $3.20 per share 90 days ago.

Sales are expected to jump 46% this year to $10.72 billion, then drop -11% in FY23 to $9.54 billion. TA’s third-quarter results topped Zacks’ consensus on its top and bottom results earlier in the month. TA beat EPS expectations by 26% at $2.54 per share. The turnover saw third-quarter sales come in at $2.81 billion, 3% above estimates.

TA is down -6% year-to-date to outperform the S&P 500. This has lagged the retail and convenience markets by +18%. However, over the past five years, TA is still up +101% to beat the +8% of its Zack sub-industry.

Even more intriguing, TA trades at just 5.4 times forward earnings. That’s well below the 21.4X high it saw earlier in the year and the 11X median. Additionally, TA is trading well below the benchmark and the industry average P/E of 14.4X.

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Wing stop AILE

Last but not least, Wingstop (WING) is a restaurant business to consider. The industry is currently in the top 50% of all Zacks industries and WING lands a #1 Zacks rank (Strong Buy). WING’s earnings estimates continue to rise after beating third-quarter expectations on its high and low lines in October.

The franchisor and operator of national chicken chain restaurants beat third-quarter EPS expectations by 25% to $0.45 per share. Sales also exceeded expectations by 3% with revenue of $92.67 million.

Year-over-year, WING earnings are now expected to grow 22% and grow another 16% in FY23 to $1.92 per share. Revenue growth is expected, with sales expected to climb 25% in FY23 and another 18% in FY23 to $417.98 million.

Wingstop is down -8% year-to-date to outperform the S&P 500 and roughly match the -7% year-to-date decline in food and restaurant markets . WING is up an impressive +417% since its IPO in 2015 to beat the benchmark and +75% for its sub-industry Zack

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Trading around $158 per share, WING is trading at 95.5 times forward earnings. This is higher than the industry average P/E of 24.1X, but Wingstop is seeing significant growth. Additionally, WING is trading well below its all-time high of 145.9X and closer to the median of 76.1X.

Conclusion

Some retail and wholesale stocks are seeing favorable earnings estimate revisions. These three stocks in particular crushed Q3 expectations and are still trading attractively relative to their past. Investors may still have the opportunity to participate in what could be prolonged rallies.

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