Analysts at Citigroup recently took a look at hardline retail stocks and the new omni-channel initiatives that are driving capex in the space.
The analysts believe that these investments are likely to pay off for several names down the road.
Does Higher Capex Mean Higher Share Price?
Citi analysts observed capex as a percentage of total revenue. Rather than focus specifically on online or brick-and-mortar spending, analysts feel that it is important to look at a company’s overall capex.
While the online channel is certainly a major part of the shift in hardline retail in recent years, analysts also see the importance of providing a better, more convenient shopping experience by opening more stores and/or renovating older ones.
Auto Parts
According to Citi’s report, auto parts retailers are spending more in capex than any other hardline segment.
O’Reilly Automotive Inc ORLY 0.43% is the biggest spender of the group in terms of capex/sales, and leads peers Advance Auto Parts Inc AAP 3.97% and AutoZone Inc AZO 1.58% in terms of quarterly comps growth.
Home Improvement
Lowe’s Companies Inc LOW has typically outspent rival The Home Depot Inc HD 0.42%, but Lowe’s stock has underperformed Home Depot’s in recent years.
Analysts believe that the fact that Home Depot executed its nationwide expansion prior to Lowe’s gave it a lingering competitive advantage.
Analysts also note that Williams-Sonoma Inc WSM 1.22% has vastly outspent Bed Bath & Beyond Inc BBBY 0.58% in terms of online-related capex.
Top Pick
Analysts see big capex increases ahead for Lowe’s, Advance Auto Parts and Best Buy Co Inc BBY 1.53%.
They also note that it’s no coincidence that these three names have often been unfavorably compared to close competitors Home Depot, O’Reilly and Amazon.com, Inc. AMZN 0.5%.
Best Buy is Citi’s top capex pick among the three names.
Read this article and all my other articles for free on Benzinga by clicking here
Want to learn more about the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
