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Why Best Buy, Urban Outfitters, and American Eagle Stocks Popped 7% to 11% on Wednesday

By Rich Smith - Updated Dec 27, 2018 at 8:07AM

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Analysts predicted a "strong" holiday season -- and Mastercard just confirmed it.

What happened

It's a retail Christmas miracle. On Wednesday, the day after X-mas, shares of Best Buy (BBY -3.04%) closed 6.9% higher. Clothiers Urban Outfitters (URBN -3.98%) and American Eagle Outfitters (AEO -0.37%) took wing as well, closing up 7.3% and 10.7% respectively.

So what

This wasn't entirely a surprise.

Two days ago, on Christmas Eve, analysts at Wedbush took at look at the sales trends and predicted  that at American Eagle, for example, "core American Eagle and Aerie brands show record sales volumes on comparably less promotional activity with broad-based strength across the board." The National Retail Federation seconded the emotion, predicting U.S. holiday retail sales would rise between 4.3% and 4.8%.

Turns out that was conservative. Mastercard's in-house market researcher, SpendingPulse, now  confirms  that total sales in the U.S. in the period running from Nov. 1 through Dec. 24 rose 5.1% in comparison to last year, "the strongest in six years."

Clothing sales did especially well, with SpendingPulse estimating that category of purchases grew 7.9% year over year. That's great news for American Eagle and Urban Outfitters alike. As for Best Buy, which doesn't sell clothes, the hope is going to be that the electronic retailer benefited both from strong foot traffic, and also a big boost to online shopping. SpendingPulse noted that online sales were up 19.1% year over year, or nearly three times as strong as overall sales growth.

Heartbeat monitor with a heart on it

Investors heart SpendingPulse's latest report on holiday sales. Image source: Getty Images.

Now what

SpendingPulse says it's "cautiously optimistic for the consumer going into 2019," but as for stock valuations, they still look pretty pessimistic -- as if investors aren't yet 100% convinced that today's good news is real.

Even after today's run-up, shares of Best Buy can be purchased for a lowly 9.4-times-forward earnings multiple. Shares of Urban Outfitters and American Eagle Outfitters are only a little more expensive, and sell for 11.6 and 12 times forward earnings, respectively.

At prices this low, it shouldn't take much earnings growth at all to give investors a very Happy New Year in 2019.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$73.32 (-3.04%) $-2.30
Urban Outfitters, Inc. Stock Quote
Urban Outfitters, Inc.
URBN
$20.27 (-3.98%) $0.84
American Eagle Outfitters, Inc. Stock Quote
American Eagle Outfitters, Inc.
AEO
$13.43 (-0.37%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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