Back-to-school shopping, one of retailers' most significant spending seasons, is becoming increasingly crucial for attracting shoppers as Americans plan to spend record amounts on back-to-school and college.

This makes investing in sound fundamental retail stocks Amazon.com, Inc. (AMZN), Walmart Inc. (WMT), and Target Corporation (TGT) a potentially profitable move.

The retail sector has faced significant challenges over the past year, with the Federal Reserve increasing interest rates by 500 basis points since March 2022. These hikes have made conditions challenging for the retail sector, as consumers have been cutting back on spending.

However, there's a positive shift. The Fed paused rate hikes in June for the first time after ten consecutive increases. Moreover, June's inflation data showed a slowdown, raising optimism that the Fed might end its monetary tightening cycle. This development bodes well for retailers preparing for the all-important back-to-school season.

According to the National Retail Federation and Prosper Insights & Analytics survey, over 55% of back-to-school and college shoppers have already begun their purchases as of early July. Major retailers have even launched summer sales events to attract these early shoppers, setting a competitive tone in the market.

According to the NRF, families with children in elementary through high school plan to spend an average of $874.68 on school supplies, nearly matching last year's record of $890.07.

Meanwhile, college-bound students and their families expect to spend an average of $1,364.75, consistent with last year’s spending. Total back-to-college expenditure is forecasted at $86.6 billion, the second-highest in survey history, after last year’s projected record of $94 billion.

With these factors in mind, let’s examine the fundamentals of three leading retail stocks, starting with the #3 on our list.

Stock #3: Amazon.com, Inc. (AMZN)

AMZN offers its consumers a variety of goods and services. The company operates in three segments: North America; International; and Amazon Web Services (AWS). It serves customers through online and physical shopfronts, focusing on selection, pricing, and convenience.

On July 25, AMZN’s Amazon Web Services (AWS) and GE HealthCare Technologies Inc. (GEHC) announced a strategic collaboration to develop purpose-built foundation models and generative artificial intelligence (GenAI) applications designed to help clinicians improve medical diagnostics and patient care.

This could attract more healthcare clients, boost AWS’s market presence in the medical field, and drive growth through innovative, high-value applications and services.

On July 11, AMZN’s AWS expanded its partnership with Workday, Inc. (WDAY), a leading provider of solutions, to help organizations manage their people and money. The companies will build GenAI capabilities, innovate new customer experiences, and invest in joint go-to-market initiatives.

This collaboration could drive innovation in customer experiences and strengthen joint marketing efforts, potentially increasing AWS’s appeal to organizations seeking advanced people and financial management solutions.

For the fiscal 2024 second quarter that ended June 30, 2024, AMZN’s total net sales increased 10.1% year-over-year to $147.98 billion. Its operating income grew 91% from the year-ago value to $14.67 billion. Plus, the company’s net income was $13.49 billion and $1.26 per share, up 99.8% and 93.8% from the prior year’s quarter, respectively.

Street expects AMZN’s revenue and EPS for the fiscal 2024 third quarter (ending September) to increase 10% and 20.3% year-over-year to $157.38 billion and $1.13, respectively. In addition, the company surpassed the consensus EPS estimates in all four trailing quarters.

AMZN’s stock price has increased 16.2% over the past nine months and 15.4% over the past year to close the last trading session at $161.02.

AMZN’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, each weighted optimally.

AMZN has a B grade for Sentiment, Momentum, and Quality. Within the B-rated Internet industry, AMZN is ranked #13 out of 51 stocks.

Click here to access additional AMZN ratings for Growth, Value, and Stability.

Stock #2: Walmart Inc. (WMT)

WMT is a technology-driven omnichannel retailer operating retail and wholesale stores, clubs, and e-commerce websites across the United States, Africa, Canada, Central America, Chile, China, India, and Mexico. The company operates through three segments: Walmart U.S.; Walmart International; and Sam's Club.

On June 13, WMT announced the private brand transformation of one of its largest and most well-known fashion brands, No Boundaries. The over $2 billion brand for young adults brings customers a modern, relevant, and youthful assortment with new fabrication, shapes, and styles, all at the same great prices.

This transformation is poised to drive WMT’s growth and expansion by appealing to young consumers and enhancing its competitive edge in the fashion market.

On February 20, WMT and VIZIO announced an agreement for WMT to acquire VIZIO for $11.50 per share in cash, totaling approximately $2.3 billion in fully diluted equity. Acquiring VIZIO and its SmartCast Operating System (OS) would enable WMT to connect with customers through innovative television and in-home entertainment experiences.

During the fiscal 2025 first quarter that ended April 30, 2024, WMT’s total revenues rose 6% year-over-year to $161.51 billion. Its adjusted operating income grew 13.7% from the year-ago value to $7.10 billion.

In addition, consolidated net income attributable to WMT was $5.10 billion and $0.63 per common share, up 205.1% and 200% year over year, respectively.

For the fiscal 2025 second quarter that ended in July 2024, analysts expect the company’s revenue to grow 4.4% year-over-year to $167.27 billion. Meanwhile, the company’s EPS is estimated to rise 5.1% from the prior year’s quarter to $0.64. Furthermore, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

WMT’s shares have gained 20.2% over the past six months and 26.3% over the past year to close the last trading session at $67.59.

WMT’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

WMT has an A grade for Sentiment and Stability and a B for Momentum. It is ranked #15 out of 37 stocks in the A-rated Grocery/Big Box Retailers industry.

In addition to the POWR Ratings we’ve stated above, we also have other ratings of WMT for Growth, Value, and Quality. Get all WMT ratings here.

Stock #1: Target Corporation (TGT)

TGT is a retail giant offering everyday essentials and fashionable merchandise at discounted prices. With nearly 2,000 stores and its website, the company offers a wide assortment of general merchandise and food, including apparel, accessories, beauty, food, beverage, hardlines, and home furnishings.

On June 24, TGT partnered with Shopify Inc. (SHOP), a global e-commerce platform, to feature popular sellers and products on Target Plus, its curated digital marketplace. The alliance expands TGT's offerings with new, trendy products and brands like True Classic and Caden Lane, providing consumers with more affordable, high-quality options.

On June 20, TGT announced the rollout of a new GenAI tool, Store Companion, to all nearly 2,000 stores by August. This makes TGT the first major U.S. retailer to implement this technology for its store team members, enhancing operational efficiency and customer service.

For the fiscal 2025 first quarter that ended on May 4, 2024, TGT reported total revenue of $24.53 billion and operating income of $1.30 billion. The company’s net earnings and EPS were $942 million and $2.03, respectively. Also, TGT’s cash and cash equivalents stood at $3.60 billion as of May 4, 2024, up from $1.32 billion as of April 29, 2023.

Analysts expect TGT’s revenue and EPS for the fiscal 2025 second quarter (ended July 2024) to increase 1.8% and 21.9% year-over-year to $25.22 billion and $2.19, respectively. Moreover, the company surpassed the consensus EPS estimates in three trailing four quarters.

Shares of TGT have surged 18.6% over the past nine months to close the last trading session at $133.87.

TGT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

TGT has a B grade for Quality, Momentum, and Value. It is ranked #23 out of 37 stocks in the Grocery/Big Box Retailers industry.

In addition to the POWR Ratings we’ve stated above, we also have TGT ratings for Sentiment, Growth, and Stability. Get all TGT ratings here.

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AMZN shares rose $0.58 (+0.36%) in premarket trading Tuesday. Year-to-date, AMZN has gained 5.98%, versus a 9.54% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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