eCommerce Is The Key To Growth
The pandemic and economic shut-down, as bad as they were (are), did nothing but spur revenue and growth for some companies. Those in the right time and right place were able to ride the wave of liquidity unleashed by the stimulus and surf it to profits. For some, the boost in spending was temporary. Shares of winners like Tractor Supply Company and Clorox are well off their highs following the vaccine news. For others, the boost merely amplified trends that were already in place. For those, the gains are sticky and providing a strong base for future growth.
Chipotle Mexican Grill, The Right Moves At The Right Time
CEO Brian Niccol took over Chipotle Mexican Grill (NYSE:CMG) at just the right time. His vision to build out an effective eCommerce platform came none too soon. Without it, the Chipotle story might be much different. eCommerce helped sustain the company through the worst of the shut-downs and now providing an avenue for growth. Simply put, the company wants you to order online and they’re making pickup easier than ever. Add to this an expectation for 7% of the competition to close-down due to the pandemic and the stage for accelerating growth in 2021.
The average analyst’s rating for CMG is a buy but fully half of the 31 ratings are neutral. I find this odd considering the strength of Chipotle’s rebound and the outlook for next year. Revenue is expected to grow above 16% YOY with a near doubling of earnings. The stock is trading at a relatively high multiple but it is expected to continue growing at these rates for several years into the future. The only downside to Chipotle is that it doesn’t pay a dividend. The upshot is the company remains well-capitalized with only modest levels of debt and ample free-cash-flow. 
Dick’s Sporting Growth Accelerates To New Highs
Dick’s Sporting Goods (NYSE:DKS) already had a strong eCommerce presence so when social distancing began it became a hotbed of activity. The company saw a sharp drop in revenue during the 2nd quarter but 1) it wasn’t as deep as the analysts had expected 2) the rebound was strong and 3) the calendar Q3 results show business is accelerating above the pre-COVID level. Unlike other pandemic stocks, social distancing trends specifically where it comes to fitness are expected to stick. Speaking for myself, I would much rather ride my bike outside than in some gym.
What Dick’s has going for it besides an outlook for sustained growth is a dividend. The stock pays about 2.2% with shares trading at $56.60 and there is an outlook for growth. The company only pays out about 20% of its earnings, the balance sheet is in good shape, and there is a history of growth. Dick’s Sporting Goods Is not a Dividend Aristocrat but it has been increasing the distribution for 8 years and with a high 17% CAGR. The next increase is due out late in the 1st quarter of 2021.
Target Embraces eCommerce
Target (NYSE:TGT) had a strong eCommerce presence before the pandemic as well and has only built on that strength in the time since. Unlike Dick’s, revenue growth at Target never turned negative as it was a front-line supplier of all things necessary to self-quarantine and social distancing. The company’s sales actually accelerated during the calendar 2nd quarter and have only gotten stronger since. Target is also a Dividend King with 52 years of annual distribution increases in its history. The company is paying out only 30% of its earnings with robust free-cash-flow so it is reasonable to expect increases to continue far into the future.
The average rating on Target is a firm buy but there are still quite a few analysts on the fence. The consensus target for Target is about 16% below the current price action but that does not accurately reflect the most recent sentiment. The most recent analysts’ actions have been target upgrades putting the stock closer to $200 or about 12% upside. Looking at the chart it appears as if the market agrees with that sentiment and is ready to drive prices higher.
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