The Zacks Analyst Blog Highlights:Wal-Mart Stores, Best Buy and PetSmart

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Dec 01, 2014, 09:30 ET

CHICAGO, Dec. 1, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Wal-Mart Stores Inc. (NYSE:WMT-Free Report), Best Buy Co., Inc. (NYSE:BBY-Free Report) and PetSmart, Inc. (Nasdaq:PETM-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

2 Online Retail Stocks for Cyber Monday

The "second" estimate for the third quarter GDP outpaced the "advance" estimate issued last month by the by the Bureau of Economic Analysis. According to the latest estimate, real GDP expanded 3.9% in the third quarter. This compares favorably with the previous estimate of 3.5% growth and consensus estimate of 3.3% growth.

The strong GDP report shows that the US economy has succeeded to maintain the positive momentum despite weak economic conditions in major foreign economies.

The retail sector has significantly benefited from higher consumer spending as expenditure in retail sector represents almost 30% of the consumer spending. Online retailers share a significant portion of it, as consumers prefer the same to order goods online while spending time with family members at home during the holidays. With Cyber Monday coming up, online sales is where it's at this season, and retailers must compete to attract the most traffic.

Consumer Spending: Main Contributor

Consumer spending, which constitutes more than 75% of economic activity in the U.S., grew 2.2% in the third quarter compared with a 1.8% growth projection. Spending was revised higher for both durables and non-durables. Spending on durables and non-durables were revised upward to 8.7% and 2.2%, compared to earlier estimates of 7.2% and 1.1%, respectively. Other factors, including non-residential as well as residential and government spending, also played important roles behind this strong GDP data.

Factors Boosting Consumer Spending

Consumer spending increased in the third quarter on the back of some important economic factors, including a decline in the unemployment rate and higher consumer confidence.

The unemployment rate declined to 5.8% in October, recording the lowest figure since Jul 2008. This follows a 5.9% rate in September and 6.1% rate in August. Apart from these, factors such as favorable credit availability, low level of inflation, decline in oil prices and low interest rate significantly contributed in raising consumer spending.

2 Online Retail Stocks to Benefit

Most of the online retailers offer special deals for Cyber Monday to enhance sales. For example, Wal-Mart Stores Inc. (NYSE:WMT-Free Report) has doubled the number of deals on Cyber Monday this year and also slashed the prices of a number of items in half.

The outlook for sales in the retail sector in this holiday season is also quite impressive. National Retail Federation (NRF) forecasted a 4.1% rise in holiday sales (November and December) to $616.9 billion, compared to 3.1% gain registered last year. The projected figure is also better than the 10-year average sales increment of 2.9%. Also, holiday sales in November and December are expected to account for about 19% of annual revenues.

In this favorable situation, here are the two online retail stocks that have potentials to get benefited from the sales on Cyber Monday.

Best Buy Co., Inc. (NYSE:BBY-Free Report) operates in a single business segment, selling personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories principally through its retail stores in different countries. The company also carries out e-commerce operations utilizing its websites such as BestBuy.com and BestBuy.ca.

Best Buy reported third quarter earnings per share of 32 cents, ahead of the Zacks Consensus Estimate of 25 cents. The retailer also reported quarterly revenues of $9,380 million, beating the Zacks Consensus Estimate of $9,095 million.

This Zacks Rank #2 (Buy) company has strong current year EPS growth estimate of 15.5%, compared to the industry growth estimate of 11.3%. The company also has an impressive price to earnings (P/E) ratio of 16.21. The EPS growth for current year has been revised 2.6% upward in the last one month.

PetSmart, Inc. (Nasdaq:PETM-Free Report) is a leading operator of superstores specializing in pet food, supplies and services in the United States. This Zacks Rank #1 (Strong Buy) company also provides services through its website, PetSmart.com.

The company posted third quarter earnings per share of $1.02, beating the Zacks Consensus Estimate of 95 cents. Net sales in the quarter increased 2.6% year over year to $1,739.1 million. This was ahead of the Zacks Consensus Estimate of $1,727 million.

This Zacks Rank #1 (Strong Buy) company has a current-year EPS growth estimate of 9.7%, compared to the industry average of 5.9%. The company also has an attractive P/E ratio of 17.73. EPS growth for the current year has been revised 1.6% upward in the last one month.

Bottom Line

Favorable factors including a rise in GDP growth, lower employment rate and decline in oil prices will let consumers spend more this holiday season. As mentioned earlier, online retail companies will receive a significant share of this spending. Thus, these two stocks should be profitable bets now.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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