The team at Wilsons has been busy looking at the retail sector this month.
And while it acknowledges that there has been a strong re-rating on consumer stocks, it believes there are still opportunities out there for Aussie investors. It said:
Despite a strong sector re-rating, there are still opportunities available that provide leverage to the consumer rebound, while also offering reasonable entry valuations.
Two ASX stocks that the broker remains positive on are listed below. Here's why it is bullish on these names:
Collins Foods Ltd (ASX: CKF)
Wilsons is a fan of this KFC-focused quick service restaurant operator. It likes the ASX stock due to the strength of the KFC brand and its store rollout opportunity. The broker said:
We are attracted to the strength of the KFC brand (particularly in Australia), the company's strong cash conversion, and significant long-term growth opportunities through store rollout – particularly in Europe.
Its analysts also believe that the company's earnings are at an inflection point and is forecasting strong earnings growth in the coming years. It adds:
In addition, CKF's earnings are at an inflection point, with its earnings leveraged to a cyclical recovery in domestic consumer spending over the near-term. The business is already starting to benefit from a stronger consumer backdrop following successive rate cuts, positioning it for a recovery in top line growth and margins that will underpin strong earnings growth.
Despite its recent rally, CKF still offers compelling value at a forward PE of ~19x, alongside a 3 year EPS CAGR of ~20%, implying an attractive PEG ratio of ~1.1x.
Universal Store Holdings Ltd (ASX: UNI)
Another ASX stock that Wilsons is positive on is Universal Store. It has been impressed with its performance in a tough economic environment. So, with interest rates falling, it believes this trend can continue. It explains:
Despite cost-of-living pressures, UNI's youth customer base has been resilient, prioritising discretionary apparel spending, with UNI's brand positioning resonating strongly with its base. Recent CBA data has shown that general discretionary spending among this demographic has been materially boosted by rate cuts, which positions UNI well.
The broker also notes that its shares remain attractively priced despite a strong rise over the past 12 months. Wilsons commented:
Despite having a strong share price run, UNI still offers compelling value given its strong outlook. At a forward P/E of ~16x, it trades at over a 40% discount to the sector, while offering one of the strongest medium-term EPS growth rates of 28% from FY25-28. This gives it a PEG of just 0.6, one of the most attractive in the sector. Despite strong comps, UNI is continuing its impressive streak in same store sales, demonstrating its attractive growth story.
