Wal-Mart Stores, Inc. (WMT), Safeway Inc. (SWY), And 3 Nice Retail Stocks To Keep An Eye On

Wal-Mart Stores, Inc. (WMT)While most people look at Dollar Stores when observing the retail sector, other store formats, like discounters and supermarkets, offer interesting investment prospects. In a previous article, we looked into the main Dollar Store chains, considering whether to invest or not and where to do it. On this occasion, we will do the same, with three U.S. retail giants:

Wal-Mart Stores, Inc. (NYSE:WMT), Safeway Inc. (NYSE:SWY) and Costco Wholesale Corporation (NASDAQ:COST).

Every investor should see this big leader

Wal-Mart Stores, Inc. (NYSE:WMT) is the U.S.’s largest grocery retailer and maintains a leading position as it expands overseas operations. Although the current stock price of $78.47 is close to its historic high of $78.56, its relation with EPS, sales, and books is considerably better than throughout most of the company’s history, especially since both earnings and revenue per share have been consistently increasing since 2004. Wal-Mart Stores, Inc. (NYSE:WMT) currently trades at 15.3 times P/E, 3.3 times P/S and 0.5574 times P/B.

Nevertheless, EPS and dividend yield do not always grow side-by-side. Dividend yield of 2.15 is close to a 3-year low, although it is still higher than the ones offered by 76% of the 49 companies competing in the U.S. discount store industry.

The fourth quarter of fiscal 2013 delivered interesting results; as a result of strong comps, revenue increased 3.9%, reaching $127.9 billion. $1.67 EPS outperformed the consensus once again (over the last year, the company has surpassed Zack’s Consensus Estimates by an average 3.24%) and operating income continued its upward trend, delivering a quarterly 2% increase, year-over-year.

Despite some encouraging financial rates and an enlarging internet sales business, no one is buying or selling much in this high stock price context. For instance, Guru Portfolios remained almost intact during the last quarter. While Yacktman and Steve Romick kept their shares unchanged, Tom Russo bought over 22,000 shares, increasing his hold to 0.02%, and Ken Fisher sold over 403,000 shares, getting rid of a bare 0.49% of his stock in this company. Sometimes, it’s smart to look at what “pros” do. In this case, it’s clear – hold and see.

A giant supermarket chain

Safeway Inc. (NYSE:SWY) is another U.S. retail giant. However, the company has not received very good results lately. Comps have been declining and it doesn’t look like they are bound to recuperate, as lower cost food retailers (like Dollar Stores) present numerous challenges. Analysts do not expect EBIT margins to improve in the upcoming months, although the firm implemented some customer loyalty initiatives aimed at increasing comps through targeted or personalized discounts.

Some encouraging prospects are derived from diminishing capital expenditures, as the company needs little investment, for most of its stores are less than five years old and new shops are not to be opened soon. Revenue and earnings per share also provide some hope. Revenue per share has been consistently growing for ten years now, and has doubled over the past six years, reaching a current $179.99. Earnings per share have also been increasing over the past few years, and now grasp their 3-year high at $2.40, quite above consensus.

Despite these and some other negative indicators, like declining gross margins and expanding long-term debt, some analysts believe that Safeway Inc. (NYSE:SWY) is poised to outperform. Zack’s estimates a target price of $32.00 by March 2014, up 20.8% from April 19, 2013’s $26.49. This projection is mainly based on the EPS upsurges, the new loyalty initiatives, a considerable share repurchase policy, and other factors like the economic recovery and company plans to reduce costs.

Although this company strikes as a troubled one, stock price is reasonable, EPS is growing, and P/E (10.3), P/B (2.2) and P/S (0.1481) rates are well below industry medians, thus offering an interesting entry point for investors. Zack’s ranks Safeway Inc. (NYSE:SWY) as a “strong buy,” as short-term returns are expected to surpass the 26% threshold (annualized), tripling S&P 500’s returns of 9.59%.