Even After Bad News, These Retailers Still Shine

After reporting that its next quarter was going to fall short of expectations, Target  (NYSE: TGT  ) was absolutely crushed by the market, with the stock almost flat since the announcement. Wait -- flat? Can that be right? Hold on, let me check -- OK, yes, it's flat. So what is it about Target that makes investors so happy? The stock is up 20% over the last 12 months, and even holiday setbacks don't seem to have had much impact on investors' confidence.

But it's not just Target. Wal-Mart (NYSE: WMT  ) and Costco (NASDAQ: COST  ) are also Freddie Mercury-style rocketships these days. The combination of brand strength and diverse product selection has made them seemingly safe bets. Tack on a healthy -- or at least existent -- dividend, and you've got yourself a winner.

Return to growth
A snapshot of the companies' growth over the past 12 months shows you just how good these investments have been. All three chains have beat out the S&P handily.

^SPXTR Chart

^SPXTR data by YCharts.

Part of the reason that Target hasn't moved much since its announcement is that the adjusted earnings estimate -- at the low end of the $1.10-to-$1.20-per-share range -- is still higher than the $1.05 that analysts are looking for. The company has been optimistic and successful recently, surprising everyone last quarter when it reported adjusted earnings per share of $1.65, while Wall Street was only expecting $1.47.

Strong earnings have come through despite downturns in gas prices and weak exchange rates. Costco's comparable March sales were up 4% including the headwinds, and up 6% excluding their effects. That's an excellent result for a huge business, and shows that consumers are still doing much of their shopping based on price.

The rough in the diamonds
While it's been a good 12 months, there are still some spots that all these companies need to work out. As Target's last announcement highlighted, seasonal trends can have a huge impact on earnings. The company surprised last quarter in part because it was able to overcome a weak holiday season, even with a failed joint venture involving Neiman Marcus.

Wal-Mart has been less lucky in its dealings. Recent reports have said that the company is suffering from falling sales and understocked shelves. Given the uninspiring news, I lean toward Costco as a long-term holding. The company has connected with its customer base in strong and inventive ways, and I expect it to continue to move from strength to strength in the coming years.

Costco's low prices haven't just benefited customers -- shareholders have walloped the market, returning 11,000% over the past two decades. However, with prices near all-time highs, is the ride over for Costco investors? To answer that and more, The Motley Fool's compiled a premium research report with in-depth analysis on Costco. Simply click here now to gain instant access to this valuable investor's resource.


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