Walmart and Target: Hold on to these Retailers

03/27/2020 5:00 am EST

Focus: CONSUMER

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

These are stressful times for everyone as the markets are taking a drubbing; but however this plays out, the crisis will eventually end, counsels Gordon Pape, editor of Internet Wealth Builder.

What investors need to do is avoid the "baby with the bathwater syndrome". In other words, don't sell stocks of sound companies that are going to survive. Hold on to them, collect dividends, and if you have some cash put aside, buy them while they're cheap. Here are two leading retailers that remain "hold" recommendations.

Walmart (WMT) is the world’s largest bricks and mortar retailer with 11,500 stores in 27 countries, plus e-commerce operations in a growing number of countries. It employs some 2.2 million people worldwide and had revenue in the 2020 fiscal year of $524 billion.

Walmart shares dropped to $102.98 on March 12, as investors worried that the coronavirus would slow sales and disrupt the retailer’s supply chain. They have since recovered a little.

In February, the company released fiscal 2020 year-end results (to Jan. 31). For the full year, revenue was $524 billion, up $9.6 billion (1.9%) over 2018.

The company’s on-line sales were the driver of new growth, gaining 37% over the year. Walmart has been investing heavily in bulking up its eCommerce platform to compete with Amazon (AMZN). The company repurchased $5.7 billion worth of shares during the quarter.

It looks like a year of slow growth for Walmart and the impact of the coronavirus is likely to negatively affect deliveries from China. However, the firm recently announced it is hiring 150,000 new workers, 500 truck drivers, an indication that its e-commerce business is thriving. That’s good news in a time of rising unemployment. Action now: Hold.

Target Inc. (TGT) is a Minneapolis-based big box store with 1,868 outlets in all 50 states and the District of Columbia. The company opened its first store in 1962 and now employs 350,000 people.

Target released fourth-quarter and year-end results on March 3. Digital sales were up 20% as Target, like Walmart, strengthens its on-line platform to better compete with Amazon. Full-year revenue was $78.1 billion, up 3.7% compared with last year. That reflected sales growth of 3.6% and a 6.3% increase in other revenue.

Looking ahead, Target expects a low-single digit increase in comparable sales and a mid-single digit increase in operating income. The company expects adjusted GAAP EPS of $6.70 to $7.00, in line with estimates. As in the case of Walmart, these forecasts were prepared prior to the pandemic.

The stock pays a quarterly dividend of $0.66 a share ($2.6 4 per year) to yield 2.7% at the current price. Share repurchases during the quarter totaling $606 million. The revenue and profit targets for this year may turn out to be optimistic if the coronavirus cuts into sales and/or disrupts the company’s supply chains. Action now: Hold.

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