The Top Department Store Stocks Beyond 2018, Ranked By Total Return Potential

The department store industry has been important in the U.S. economy for decades. Consumers used to spend a significant portion of their disposable incomes in one of the thousands of department stores across the country. However, changes in the retail industry have made department stores less prominent over the years, as online shopping and more specialized, smaller retailers stole market share.

Due to the changes in the way consumers shop, department store stocks have underperformed the market over the last couple of years, as many investors shifted towards e-commerce companies like Amazon (AMZN) or others.

For those department stores that offer a compelling product portfolio, top-notch customer service and stores in optimal locations where traffic will remain high, the outlook is not all bad. A strong economy, low unemployment, and rising disposable incomes mean that consumer spending is poised to remain strong over the foreseeable future.

Many department stores still generate enough cash flow to pay compelling dividends to shareholders. Of the eight stocks on this list, five pay dividends to shareholders. They can be found on our list of 674 consumer cyclical dividend stocks.

More information can be found in the Sure Analysis Research Database, which ranks stocks based upon their dividend yield, earnings-per-share growth potential and valuation to compute total returns. The stocks are listed in order below, with #1 being the most attractive for investors today.

Read on to see which department store stock is ranked highest in our Sure Analysis Research Database.

Department Store Stock #8: Sears Holdings 

Sears Holdings (SHLD) is the parent company that controls Sears as well as Kmart. The current market capitalization is just $232 million, which is not surprising, as Sears Holdings’ share price crashed from well above $100 to just $2.30. The 2018 first quarter showed continued sales declines, and a net loss.

SHLD Highlights

Source: Investor Presentation

Sears Holdings’ retail brands, Sears and Kmart, have both performed very badly over the last several years. Its existing store base continues to see its comps sales fall, at an 11.9% pace during the most recent quarter, while losing money, even when company-level expenses are backed out.

Sears Holdings has negative equity on its balance sheet, and net earnings as well as cash flows have been negative for years. The company still owns valuable assets, such as its Kenmore brand of appliances. But with negative operating margins, falling sales, and high debt levels, it seems unlikely that the company will be able to recover meaningfully.

Since CEO Eddie Lampert is also one of the major debt holders, restructuring deals or debt-for-equity swaps that could be beneficial for the company’s balance sheet are possible. Management has been able to keep the company alive for longer than some investors believed. As a result, total returns will most likely be negative.

The company can’t be valued based on its book value, its cash flows or its earnings, as these are all negative. Therefore, the only viable metric is the price to sales multiple. Due to falling sales from store closures and comps sales declines, and pressure on its valuation multiples, we estimate that total returns over the coming years will be negative. We expect negative total returns of 20% per year, which would cut the share price by two thirds over the coming five years. In our opinion, investors should avoid Sears Holdings stock.

Department Store Stock #7: Stage Stores

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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