SmarterAnalyst

The temporary closure of retail stores during the coronavirus pandemic had a severe impact on the retail sector. However, a spike in e-commerce sales helped retailers to offset part of the loss of sales from the closure of physical stores. Many US retailers are recovering with the gradual reopening of stores since May. Meanwhile, investors will be keenly watching sales trends as the peak holiday season approaches.Using the TipRanks’ Stock Comparison tool, we will place consumer electronics retailer Best Buy and beauty retailer Ulta Beauty alongside each other to see which stock offers a better investment opportunity.Best Buy (BBY)Thanks to remote working and shelter-at-home orders, Best Buy experienced strong sales in the second quarter of fiscal 2021 (ended Aug.1) for certain consumer electronics categories even as stores were open by appointment only for the first six weeks of the quarter and demand shifted to online channels.The specialty retailer’s 2Q revenue grew 3.9% Y/Y to $9.91 billion with comparable sales (or comps) rising 5.8% and domestic online comps surging 242%. Adjusted EPS jumped 58.3% to $1.71. Merchandise categories that experienced strong growth included computing, appliances and tablets. But mobile phones and digital imaging sales declined.Despite strong 2Q performance, investors were disappointed as the company cautioned that although it expects Y/Y growth in 3Q revenue, the 20% growth level seen in the first three of weeks of 3Q might not continue at this rate in the remainder of the quarter. In addition, the company indicated that looking ahead, its 2Q earnings growth rate might not be sustainable due to more labor hours in the physical stores, reinstatement of short-term incentive plans and higher advertising spend in 3Q.Best Buy also pointed to uncertainty related to its performance in the second half of the year due to several factors, including the government’s stimulus actions, shift in personal spending from travel and dining out and the impact and duration of the pandemic.Overall, Best Buy’s strong online business and its exposure to the in-demand consumer electronics categories helped the company weather the current crisis better than other retailers. However, higher costs to meet the demand for increased online sales are still a concern.On Sept. 1, Loop Capital Markets analyst Anthony Chukumba reiterated his Buy rating on the stock with a price target of $130 following research into the company’s product pricing compared to Amazon. The analyst compared prices of 50 items across 5 different product categories and found that Best Buy’s prices are getting more competitive.The results showed that Best Buy was 2.4% more expensive than Amazon, and that figure was an improvement from the 3.6% rate that the analyst previously observed in June. Chukumba believes that a narrowing price gap is good news for Best Buy. He adds that the slightly higher prices are less likely to put consumers off, especially if they want the convenience of picking up an item in-store or curbside. (See BBY stock analysis on TipRanks)Meanwhile, the Street has a Moderate Buy analyst consensus on the stock that breaks down into 11 Buys, 8 Holds and no Sell ratings. With shares up about 22% so far this year, the average analyst price target of $122.17 reflects upside potential of another 14% in the coming months.Ulta Beauty (ULTA)The pandemic has hurt consumer spending on several non-essential categories. But, sales seem to be picking up with the reopening of stores since the easing of lockdown restrictions. Ulta Beauty’s comparable store sales were down 10% in July, improving from a 37% drop in early May. Sales trends continued to improve with comps down in the mid-single-digit range in the first three weeks of August.Ulta Beauty’s sales for 2Q of fiscal 2020 (ended August 1) declined 26.3% to $1.23 billion with comps down 26.7% due to the impact of store closures at the beginning of the quarter. However, e-commerce comps spiked over 200% as customers used facilities like buy online, pickup in-store, and curbside pickup. The company posted an adjusted EPS of $0.73 in 2Q compared to $2.72 year-on-year.Due to pandemic-related uncertainty, the company expects comps to decline in the low double-digit to mid-teens range in the second half of fiscal 2020.The company resumed new store openings in August and has a target of opening 19 stores in the second half of fiscal 2020. As of the end of 2Q, Ulta Beauty operated 1,264 stores. Over the long-term, the company aims to operate 1,500 to 1,700 stores in the US.Ulta Beauty is expanding its ship-from-store facility to 100 stores to increase its shipping capacity and ensure faster delivery ahead of the holiday season. To attract more customers to its online channels, the company expanded its virtual try-on capabilities to include new features like the benefit brow bar and hair color and also rolled out a skin analysis tool.Ulta Beauty continues to expand its brand offerings across all price points with additions like Beekman 1802, L’Occitane and Glamglow. The company’s new skincare brands from its emerging brands platform Sparked include Kinship, UpCircle and Fifth & Root. (See ULTA stock analysis on TipRanks)On Sept. 10, DA Davidson analyst Michael Baker initiated coverage of Ulta Beauty with a Buy rating and $280 price target. “Although trends remain challenging in the beauty business, we believe ULTA should benefit from the continued reopening of the economy," Baker said."Thus, we believe it makes sense to get in front of this potential improvement, particularly as ULTA should take share during the rebound as other retailers struggle,” he added.Overall, a Moderate Buy analyst consensus on the stock is based on 13 Buys, 5 Holds and no Sell ratings. The stock has dropped over 5% year-to-date, with the average analyst price target of $269.50 implying 12.3% upside potential lies ahead.ConclusionBest Buy’s operational business, year-to-date stock performance as well as higher upside potential and a lower forward PE make it a more favorable stock compared to Ulta Beauty right now. Moreover, Best Buy rewards its shareholders with dividends and has a dividend yield of 2.04%.To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. 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