- With the coronavirus causing an increase in consumers loading their pantries and buying in bulk, analysts at Stifel think these four retail stocks will benefit from the trend.
- In a note published Monday, Stifel analysts released a consumer spending survey that found 55% of consumers reported they are purchasing more due to worries surrounding the coronavirus pandemic.
- Based on their survey, Stifel sees retailers Amazon, Costco, Wal-Mart, and Target benefiting from the increased pantry loading by consumers.
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Fifty-five per cent of consumers are purchasing more essential items due to worries surrounding the coronavirus pandemic, according to a consumer spending survey conducted by Stifel and published in a note on Monday.
Analysts at Stifel found that consumer pantry loading, at-home eating trends, and digital e-commerce shopping continue to remain at elevated levels since stay-at-home orders swept across the US throughout late March and early April.
The analysts expect these trends to remain elevated “for the forseeable future as restaurant re-opening are gradual, social distancing remains the norm, and consumer nervousness is ongoing.”
This, in combination with the results from Stifel’s proprietary consumer spending survey, led the analysts to point to retail giants Amazon,Costco,Wal-Mart, and Target as prime beneficiaries of the increased consumer spending on consumer staple items.
Here’s Stifel take on the implications of the coronavirus pandemic on these four retailers.
Amid the coronavirus pandemic, e-commerce growth continues to accelerate as more consumers stay at home and shop online in order to limit trips to a physical store.
According to Stifel’s survey, “79% of consumers reported a change in their shopping patterns, with 65% of consumers shopping in-store less often and 64% shopping online more often. Our data suggests 42% of consumers who are shopping less in-store are making up for it by shopping online.”
Amazon, the world’s largest e-commerce platform, is well positioned to take advantage of this trend, and Stifel says “… the coronavirus pandemic could change US consumers shopping behaviour accelerating online grocery adoption.”
Twenty-seven per cent of consumers reported spending $US50 more than their average trip at Amazon. Consumer spending intentions were second highest at Amazon, which suggests price and convenience are key factors driving purchase intent currently, according to Stifel.
Additionally, “Amazon is popular with the 55% of consumers who are purchasing more in anticipation of coronavirus related issues, with 69% of those consumers planning to shop on Amazon.”
Stifel rates Amazon a Buy with a price target of $US2,600, representing implied upside of 12.7% from current levels.
Costco has seen increased spending intentions by consumers, according to Stifel’s consumer spending survey. The bulk-buying grocery chain saw 46% of consumers spending $US50 more than their average trip.
“Intentions for Costco have fared the best out of surveyed brick-and-mortar retailers as the club store over indexes to grocery and as consumers ‘stocking up’ is consistent with its bulk offering format,” Stifel said.
Costco reported US comparable sales were up 12.1% in the month of March, which although elevated, came far below consensus estimates of 24.1%. The miss was attributed to “mandated operational changes in the second half of the month, including reduced hours, closure of departments like optical and hearing aids, and inability to sell ‘nonessential merchandise’ in some clubs based on local guidelines.”
Stifel expects Costco’s April sales to continue to be impacted by the mandated rules and inability to sell nonessential items, but gradual state reopenings should lessen that impact.
A change in eating habits is also benefiting Costco. “66% of consumers responded eating/cooking at home more often … We think this benefits companies such as Costco, which derives ~60% of its sales from grocery …”
Finally, Stifel noted that Costco is likely seeing a surge in its e-commerce offering, despite its less developed digital offerings. Stifel thinks Costco should “invest more in digital capabilities, though we also appreciate the difficulty in changing consumer habits given the store’s reliance on in-store shopping (i.e. The Treasure Hunt).”
Stifel rates Costco a Buy with a $US330 price target, implying 7.5% upside from its current price of $US306.76.
In Stifel’s survey, Walmart experienced the highest consumer spending intentions relative to its retailer peers, suggesting Walmart’s high store count, location proximity, and standardised measures in place to fight the spread of the coronavirus are sitting well with consumers.
Stifel observed that “Walmart is the most frequented destination for those who plan on purchasing more due to coronavirus related issues, with 71% of consumers reporting shopping there, compared to 63% in the prior week.”
Twenty-seven per cent of consumers reported spending $US50 more than their average trip at Walmart.
Stifel rates Walmart a Hold with a price target of $US117, representing implied downside of 8.8% from its current price of $US128.41.
A quarter of consumers reported spending $US50 more than their average trip at Target, according to Stifel’s consumer survey.
Target saw shopping intentions increase 6 points to 34%, up from 28% in the prior week.
“Approximately 43% of consumers who are spending more due to coronavirus have responded with plans to shop at Target, up from 37% previously, though the largest delta for all surveyed brick-and-mortar retailers. We attribute this to Target over-indexing towards the three most popular categories being purchase by these consumers – grocery, personal care, and household items.”
Limits on sales of nonessential items in certain states have negatively impacted Target’s sales in discretionary categories such as electronics and furniture.
Stifel rates Target a Hold and assigns a $US120 price target, implying upside potential of 7% from its current price of $US111.95.