3 Big Box Retail Bets for the Holidays

Key Points

• Best Buy  BBY beat its most recent earnings estimate by $0.35
• Target may be the better bet, this year, thanks to solid projected earnings growth
• TJX is up more than 12% and 25% on the month and the quarter.

The winter holiday season is an important time for retailers, as many rely on sales over this two or three-month period to shore up slower periods of the year. That means it is also an important time for investors, as sales from the holiday season could offer a quick return on investment or a lower entry price for a long-term payout. These stocks could be part of a Santa Claus Rally later this month.

With that in mind, here are three big box retailers you may want to consider as the end of the year draws nigh. All three currently have Moderate Buy ratings.

Best Buy

As an electronics specialty big box retailer, Best Buy (NYSE: BBY) tends to be a very popular shopping destination around the holidays. This year, the company projects earnings growth of around 6.87%, increasing earnings from $6.55 to $7.00. This, unfortunately, indicates that the stock has a downside of -4.8%. While the company definitely lowered their guidance, recently, this is not necessarily a reason to ignore them this year.

For one, BBY has a strong dividend yield of 4.16%, paying out an annual dividend of $3.52. These are impressive considering that the stock has been in decline since about a year ago (when the stock hit its all-time high of $136.13, on November 19, 2021). Still, BBY has seen a consistent dividend increase for at least the last 18 years. With a dividend payout ratio of 52.69%, then, investors who pick up shares of BBY could enjoy a little payout after the stock's upcoming Jan 3, 2023 dividend payment.

Sure, BBY beat its most recent earnings estimate by $0.35, to get up to $1.38 EPS but it is still down since the same period last year. Indeed, Q4 of 2021 had an EPS of $2.08. Indeed, the stock is sitting slightly lower than its 52-week median and has a less-than-impressive current value of $84.54 per share. Its downside rating could see the share price drop to $81.44, but a P/E ratio of 12.66 is more affordable than the market average (118.48).

It may be down more than 20% on the year so far but there is still time for some last-minute revenue as we approach the week of Christmas. After all, the summer season is not necessarily a considerable period for electronics purchases. But if the quick rebound that started just before November continues its momentum, the retailer could get the boost it needs just before its next reporting date, which is March 1.

Target Corporation

Target (NYSE: TGT) is a common retailer to watch around the holidays, along with its direct competitor Walmart (NYSE: WMT). While they are similar in-store offerings, Target may be the better bet, this year, thanks to projected earnings growth nearing 74%, watching earnings per share jump from $5.71 to $9.93. That said, its current $1.54 earnings is down almost 50% from the same time last year, though it has been on a tear since its most recent bottom from Q2, 2022.

It may only be in the bottom 20% of its 52-week range, but a solid P/E ratio of 21.50 a fair 16.0% upside suggests that while it has lots of room to grow, it should not have a problem reaching its next price target of $185.07. Sure, TGT missed its earnings estimate, by $0.61, in its most recent report (on November 16) but meeting the new estimates should not be a problem by the next reporting date (March 17, 2023).

Target has a dividend yield of 2.75% with an impressive annual dividend of $4.32. The retailer has a very strong dividend payout ratio of 59.18% and its next payment is just in time for the holidays, on December 10. Most importantly, TGT has been paying out dividends, consistently, for at least the last 50 years.

TJX Companies

TJX Companies (NYSE: TJX), is the parent company of brands you may be more familiar with like HomeGoods, Marshalls, and, of course, T.J. Maxx. Mostly focused on discounted apparel and home fashion brands, the company's stock has remained relatively stable at a time when many others saw a decline; and that is likely due, at least in part, to consumers tightening their finances during the pandemic. So while other, full-price, retailers definitely struggled, the fact that TJX is up more than 12% and 25% on the month and the quarter, respectively, is a good thing; they are also up more than 5% YTD and nearly 13% on the year.

Indeed, the stock has a current value of $79.67 and is on track to pass its 52-week high ($81.17). In addition, the TJX has a healthy short interest with a 3.7% upside—on a price target of $82.56—and comfortable projected earnings growth of 12.50%. This will bring the EPS up from $3.12 to $3.51.

One of the most important factors drawing investors to TJX stock is the dividend strength, which has grown over the last year. While it certainly does not have the penultimate dividend quality, a 1.47% dividend yield is worthwhile; it is at least better than 25% of all stocks (that pay a dividend). The TJX dividend payout is a sustainable 41.11%, well below the 75$ threshold. Finally, TJX Companies' dividend payout ratio for next year is 33.62%, based on current earnings estimates. TJX made its most recent dividend payment on Dec. 1st.