Barron's interviews Deborah Weinswig, Managing Director and Retailing Analyst at Citigroup Investment Research. Some excerpts:
- Weinswig's focus is on major retailers like Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD) and Target (NYSE:TGT).
- Buying retail stocks has become very story-specific. Technology and top talent are key components of a winning story. Retailers investing in their technology include Saks (NYSE:SKS), J.C. Penney (NYSE:JCP), Home Depot and Nordstrom (NYSE:JWN).
- Consumers are adjusting to the new normal, with value taking on a larger role. Even among cheaper items, units per transaction are down as consumers try to work within a budget. People are also eating at home more often, helping traffic at stores that sell food.
- Wal-Mart's store traffic has been positive, but it hasn't done as well as many expected. Weinswig has a Hold rating on the stock.
- Target was downgraded to Sell in February 2008 because of concerns over credit, women's apparel and a lack of a value message vs. Wal-Mart. Those concerns still remain.
- Costco (NASDAQ:COST) is a Hold as well because it's skewed towards big-ticket items like washing machines, where sales have been weak. They also sell gasoline but prices have been weak. Weinswig sees Costco as "an extremely expensive grocery store" that trades at around nine times enterprise value to Ebitda. Kroger (NYSE:KR) or Safeway (NYSE:SWY) are more compelling buys.
- Weinswig likes J.C. Penney because of its exclusive-label and private-label merchandise which accounts for around 52% of sales. The stock's valuation is attractive and annual sales of $125M five years from now could be too low an estimate.
(The full interview is available here.)