Walmart, TJX, and Dick’s Sporting Goods: Retail stocks to watch – Magic Post

Consumer habits have changed, but spending remains strong, leaving big box stores like Walmart behind New York Stock Exchange: MTTJX Companies New York Stock Exchange: TGXAnd Dick’s Sporting Goods New York Stock Exchange: DKS In a solid position. Their dominant positions allow them to deliver value to consumers while gaining market share in a tepid retail environment. The bottom line is that these companies will sustain growth in 2025 and expand their margin, which is critical because cash flow and return on capital are central to the investment thesis. These companies pay dividends and support large amounts of equity, providing a tailwind to value that will likely strengthen as the year progresses.

Walmart’s everyday low prices increase value for investors

Walmart and the retail sector won’t have the hottest growth in 2024, but they will maintain growth and expand their margins. Walmart is expected to grow revenues about 5% due to international expansion and non-core businesses, including advertising, and profits to grow by twice that amount. Margin strength will be associated with increased revenue and cost controls, with bottom lines worsened by share repurchases. Walmart is not an aggressive buyback company but they do offset dilution and stock-based compensation, which is sufficient. The company repurchased $3 billion in the first three quarters of 2024 and is likely to maintain that pace for the foreseeable future.

Walmart’s dividend isn’t as high-yielding or comparable to the S&P 500’s 1%, but it’s among the most reliable. The company’s balance sheet carries debt but is well managed, leaving ample cash flow for annual raises and stock repurchases. The company is a dividend king with over 50 years of consecutive annual increases and still pays less than 35% of the dividend.

Analyst trends support the upward trend of WMT stock price. The group has steadily raised its consensus rating and price target throughout 2024, signaling a new all-time high for the stock. The consensus target is in line with the recently set all-time high, but more recent revisions are much higher and suggest a 25% upside from the 2024 closing price.

TJX Companies gives them what they want

Consumers haven’t given up on discretionary items, including fashion and home goods, but they are price conscious, a trend for which TJX Companies is well positioned. It keeps growing in line with industry trends due to strength driven by sales volume and traffic across all banners, not high prices. The important detail is that margin strength is also there, supported by cost control and industry trends.

Rising inventory in the wake of the COVID-19 pandemic and subsequent supply chain issues hurt many full-price apparel retailers but not TJX’s. TJX Companies, an off-price merchant, now has ample merchandise options, allowing it to focus on the brands and items consumers want and pay the prices they want.

The company’s cash flow is why stock prices are expected to rise in 2025. It allows TJX Companies to maintain a healthy balance sheet while returning capital and increasing distributions annually. Balance sheet and return of capital highlights include increased cash in F2025 despite buybacks, dividends and increased inventory. Other highlights include increased total assets partially offset by increased liabilities. Debt is relatively flat, and equity is rising, about 20% year-to-date.

In terms of return of capital, buybacks benefit shareholders, reducing the number by approximately 1.5% during the quarter. Dividend distribution increases annually. The dividend is attractive at a 1.35% yield and just 35% of earnings, and has been growing at a double-digit CAGR in recent years.

Dick’s Sporting Goods has been a big hit for investors

Dick’s management has worked hard since before the pandemic to establish the company as a leading sporting goods retailer. Promoting social distancing was a game-changing boost that made it the leading sporting goods retailer. Now, Dick’s is maintaining healthy growth, margin, cash flow and returns on capital.

Dick’s Sporting Goods’ revenue and earnings are expected to grow at a mid-single-digit rate in 2025, but expectations are likely to be subdued due to strong comp and market share gains in 2024.

Dick’s Sporting Goods is a quality stock that is growing its dividend and aggressively increasing its dividend at a high double-digit CAGR. The pace of distribution growth is supported by earnings growth and supported by a healthy balance sheet, so it is sustainable and able to support higher share prices. The capital return includes dividends, which yield nearly 2%, with shares near record highs and buybacks. Buybacks reduced the count by 1.80% on average in the third quarter and are expected to continue at a pace of count reduction in calendar 2025.

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