Over the past year, the retail sector has shown remarkable resilience due to robust consumer spending. Recent economic reports have further supported the possibility of a soft landing. In light of these developments, let’s evaluate whether Best Buy Co., Inc. (BBY – Get Rating) and Murphy USA Inc. (MUSA – Get Rating) are worthwhile investment options.
Consumer sentiment in the United States has been positive as inflation has slowed down. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, eased for the second consecutive month, dropping from a 3.8% increase in May to a 3% year-over-year increase in June. This decline in inflation has led to an 11% rise in consumer sentiment in July, reaching its highest level since October 2021.
The Commerce Department reported that consumer spending, accounting for over two-thirds of the U.S. economic activity, rose by 0.5% in June after a 0.2% gain in May, further boosting the economy’s growth prospects for the latter half of 2023. Additionally, personal incomes increased by 0.4% in June, contributing to sustained consumer spending. The combination of increasing consumer demand, higher disposable income, and evolving consumer preferences is expected to drive global specialty retailers to reach $42.73 trillion by 2031, with a compound annual growth rate (CAGR) of 4%.
Total retail sales worldwide are projected to reach $29.3 trillion in 2023, indicating a 3.9% increase from the previous year. The industry’s annual growth rate is expected to average 3.8% from 2023 to 2026, with a predicted total retail sales value of $32.8 trillion by 2026. Given the positive industry outlook, investors may consider quality retail stocks like BBY and MUSA, which are well-positioned to benefit from these favorable trends. Now, let’s delve into a detailed evaluation of the fundamentals of these featured stocks.
Best Buy Co., Inc. (BBY – Get Rating) is engaged in the retail of consumer technology products and services through Domestic and International segments. Its stores offer a wide range of products, including computing and mobile phone products, networking products, tablets, smartwatches, digital imaging, health and fitness products, and smart home products. BBY recently paid its shareholders a regular quarterly dividend of $0.92 per common share. With a four-year average dividend yield of 3.04% and a current dividend of $3.68, BBY translates to a 4.45% yield based on prevailing prices.
Over the past three years, BBY’s dividend payouts have grown at a CAGR of 19.7%, and over the past five years, they have grown at a CAGR of 17.9%. The stock also boasts a record of 12 years of consecutive dividend growth. In terms of valuation metrics, BBY is trading at a forward EV/Sales of 0.48x, which is 60.1% lower than the industry average of 1.21x. Additionally, its forward Price/Sales of 0.42x is 53.9% lower than the industry average of 0.91x.
In terms of financial performance, BBY has shown impressive growth over the past three years, with revenue and net income growing at CAGRs of 20.4% and 37.9%, respectively. Furthermore, its earnings per share (EPS) have improved at a CAGR of 52.5% over the same period. The stock’s trailing-12-month return on capital employed (ROCE), return on total capital (ROTC), and return on total assets (ROTA) stand at 83.11%, 18.91%, and 15.22%, respectively, outperforming the industry averages of 10.57%, 6.05%, and 3.72%.
Shares of MUSA have gained 14.7% over the past six months, closing the last trading session at $299.20. With an overall rating of B, which translates to Buy in our proprietary rating system, MUSA has also received B grades for Value and Quality. Within the same industry, it ranks #10 among 43 stocks.
In conclusion, given the retail sector’s resilience and positive economic outlook, Best Buy (BBY) and Murphy USA (MUSA) appear to be quality stocks with potential for growth in your investment portfolio. However, as with any investment decision, it is essential to conduct thorough research and consider individual risk tolerance before making any investment choices.
Source: Stock News
