Bigger refunds this tax season have inspired shoppers to head into stores to try and cross off some items from their wish lists. As a result, certain retail stocks may experience a windfall of gains. The Internal Revenue Service (IRS) reports that the average refund is nearly 5.19% higher than in 2023, at an average of $3,124 compared to $2,970 last year. This should come as a welcomed relief for retailers who have endured sluggish consumer spending recently.
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While some consumers will likely use the windfall to pay down debt or boost savings, analysts predict a significant portion will head towards retail stores. Investors should note that some retail outlets are expected to get a much larger bump in sales than others.
Check Out Value Retailers
Investors should keep an eye out for value retailers, as they are poised to benefit the most from the spending spree. Analysts believe that retailers catering to budget-conscious shoppers will experience the largest boost from these larger refunds. This is primarily because lower-income households have been particularly affected by inflation and rising interest rates. Additionally, these households are most inclined to use the extra cash for immediate purchases to fulfill pent-up demand.
Moreover, David Bellinger, an analyst at Mizuho Securities, said that the bigger refunds are a positive for those with weaker finances who are “still fighting through the compounding effects of inflation.” This is why he thinks companies that have a customer base most likely to turn their IRS check into something they can use, rather than place it in savings, should benefit the most.
Among the highest-ranked retail stocks on Tipranks are those categorized as “value-shopper” favorites. These include Burlington (NYSE:BURL), the parent company of TJ Maxx and Marshalls, TJX (NYSE:TJX), the big box retailer Costco (NYSE:COST), and Target (NYSE:TGT), among others. BURL, TJX, and COST stocks have all been given a Strong Buy analyst consensus rating. The highest upside potential can be seen in BURL stock, with a 25.48% upside and an average analyst BURL price target of $250.27.
To explore this sector, utilize the TipRanks Stocks Comparison Tool to identify retail companies selling essential goods needed by families. This method is effective for compiling a watchlist and sorting through companies ranked highest by industry analysts.
Key Takeaway
The deadline for filing taxes this year is April 15th, and many individuals expecting refunds have already filed. The IRS expects to process electronic returns within 21 days of receipt. The increased tax refunds this year present an opportunity for both budget-conscious consumers and the retail sector they frequent the most. With new tax refunds in their pockets, shoppers may make purchases they had previously postponed, potentially resulting in a surge in sales for retailers, especially those popular among budget-conscious families.
