Consumer cyclical stocks have witnessed a substantial price dip amid bearish consumer sentiment and contracting macroeconomic growth rates. However, consumer spending remains strong and could help fundamentally sound consumer cyclical companies ODP (ODP), Movado Group (MOV), and TravelCenters of America (TA) to perform well despite the economic turbulence. Thus, we think investors should take advantage of the dip and scoop up these companies’ shares. Read on.
With high inflation, the Fed’s interest rate increases, and recessionary pressures, the University of Michigan’s consumer sentiment index hit near rock bottom with a 59.1 reading in May, down 9.4% from April. Furthermore, following the U.S. economy’s marginal GDP growth contraction in the last quarter, the performance of consumer cyclical stocks, which are highly dependent on the business cycle, has been negatively affected. However, certain financially robust consumer cyclical stocks could be worth betting on.
Furthermore, in April U.S. consumer spending rose more than expected despite widespread recessionary fears and slashed growth estimates. Also, the current job market is piping hot, which could generate sufficient consumer spending in the coming months, boosting the consumer cyclical industry.
Given this backdrop, we think it could be wise to buy the price dip in the stocks of fundamentally sound consumer cyclical companies ODP Corporation (ODP), Movado Group, Inc. (MOV), and TravelCenters of America Inc. (TA). These stocks look undervalued at their current prices.
ODP Corporation (ODP)
Boca Raton, Fla.-based ODP provides business services and supplies, products, and digital workplace technology solutions for small, medium, and enterprise businesses. The company operates in two divisions–Business Solutions, and Retail.
On May 4, 2022, Gerry Smith, ODP’s CEO, said, “We’re advancing our new digital platform business, Varis, receiving positive feedback from key build partners as we move closer to a broader launch of the platform later this year. We’re also excited about the progress we are making on our supply chain and purchasing services provider, Veyer, and the future value we expect to create in support of our B2B and B2C businesses and as we offer logistics services to other third parties in the future.”
ODP’s sales were $2.18 billion for the first quarter, ended March 26, 2022, compared to $2.17 billion in the year-ago period. Its net income came in at $55 million, up 3.8% year-over-year, while its EPS was $1.09, up 14.7% year-over-year.
ODP’s 0.27x forward EV/S is 75.8% lower than the 1.11x industry average. Its 0.22x forward P/S is 75.7% lower than the 0.91x industry average.
Analysts expect ODP’s EPS to increase 12.3% per annum over the next five years. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 13.3% in price to close yesterday’s session at $37.29.
ODP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ODP has an A grade for Value and Quality and a B grade for Growth. Within the Specialty Retailers industry, it is ranked first among 44 stocks. Click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for ODP.
Movado Group, Inc. (MOV)
MOV in Paramus, N.J. designs, sources, markets, and distributes watches worldwide. The company operates in two segments: Watch and Accessory Brands and Company Stores. It sells directly to consumers through its e-commerce platforms and operates more than 50 retail outlet locations.
On May 26, 2022, Efraim Grinberg, Chairman, and CEO, said, “The diversity of our business model continues to serve us well as we successfully capitalized on growth opportunities across our portfolio, channels, and geographies, most notably in Europe, the Middle East, India, and Latin America.”
MOV’s net sales increased 21.2% year-over-year to $163.42 million for its first quarter, ended April 30, 2022. Its adjusted non-GAAP net income came in at $19.13 million, up 89.6% year-over-year. And its adjusted non-GAAP EPS came in at $0.82, up 90.7% year-over-year.
MOV’s 0.87x forward EV/S is 21.9% lower than the 1.11x industry average.
For its fiscal year 2023, analysts expect MOV’s revenue to be $796.20 million, representing an 8.7% year-over-year rise. The company’s EPS is expected to increase 15% per annum over the next five years. It has surpassed the consensus EPS estimates in each of the trailing four quarters. And over the past month, the stock has declined 7.8% in price to close yesterday’s session at $33.16.
MOV’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system. It has an A grade for Value and Quality.
TravelCenters of America Inc. (TA)
TA operates travel centers, truck service facilities, and restaurants in the United States and Canada. The Westlake, Ohio, company runs 276 travel centers under the TravelCenters of America, TA, TA Express, Petro Stopping Centers, and Petro brand names in 44 states in the United States and the province of Ontario, Canada.
Last month, TA opened a new TA Express travel center in Fairfield, Tex., located off Interstate 45, exit 198, which expands TA’s total nationwide network of travel centers to 276 sites, including 45 franchised sites.
On May 2, 2022, Jonathan M. Pertchik, TA’s CEO, said, “We acquired two locations in April and continue to evaluate additional opportunities. We have also completed half of approximately 100 planned site refreshes, with the balance expected to be completed by the end of 2022, which will provide an upgraded experience to our existing customers and likely attract new customers and guests to TA.”
TA’s total revenues increased 50.2% year-over-year to $2.30 billion for the first quarter, ended March 31, 2022. Its net income came in at $16.30 million, compared to a $5.82 million loss in the prior-year period. Furthermore, its EPS came in at $1.10, compared to a $0.40 loss per share in the previous period.
The stock’s 0.23x forward EV/Sis 79.2% lower than the 1.10x industry average. Its 0.06x forward P/S is 93.8% lower than the 0.89x industry average.
For its fiscal 2022, TA’s revenue is expected to increase 40% year-over-year to $10.27 billion. Its EPS is estimated to increase 11.4% from the prior year to $4.58 in 2022. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters. And the stock declined marginally to close yesterday’s session at $38.08.
TA’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
In addition, it has an A grade for Value and a B grade for Sentiment and Quality. Click here to see the additional POWR Ratings for TA (Growth, Momentum, and Stability). TA is ranked #3 of 44 stocks in the Specialty Retailers industry.
ODP shares were unchanged in premarket trading Thursday. Year-to-date, ODP has declined -5.07%, versus a -13.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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