Tax season is underway, and the heftiest refunds – which could affect certain consumer stocks – are still to come. The latest data from the Internal Revenue Service shows the average refund weighed in at $2,169 in the week ending Feb. 14 , reflecting a 32.4% decline year over year. That dramatic downturn is a short-term blip, however. “A significant portion of this [year-over-year] discrepancy is due to the IRS not paying out Earned Income Tax Credits or the Additional Child Tax Credit until after mid-February,” although they were reflected in the year-ago data, wrote Vincent Caintic, analyst at BTIG, in a report on Sunday. “We’re missing an entire week’s worth of EITC and ACTC in the comparison,” Caintic added, noting that he expects a recovery in refunds when those credits are paid out. Low to moderate income filers may be eligible for the earned income tax credit, and what they end up receiving will depend on their adjusted gross income and the number of qualifying children. In the 2024 tax year, the maximum amount for filers with two qualifying children is $6,960, according to the IRS. Meanwhile, the additional child tax credit is a refundable credit —meaning that if it exceeds the amount of income taxes owed, the filer gets the difference back as a refund. It’s worth up to $1,700 for each qualifying child. The Protecting Americans from Tax Hikes Act of 2015 requires that the IRS delay refunds for returns that claim the EITC or the ACTC, generally holding them back until mid-to late February to prevent fraud. Sensitive to refund timing Several consumer-focused stocks are especially sensitive to the timing of tax refunds, and they could see some shake-ups in the near term if there are any disruptions, according to Mizuho analyst David Bellinger. He highlighted AutoZone , O’Reilly Automotive and Five Below as a few of the tocks with “a greater mix of lower income customers and [that are] more exposed to the timing of tax refund disbursements.” AutoZone shares are up 23% in the past 12 months, and 23 of 30 analysts rate it a buy or strong buy, according to LSEG. Consensus price targets call for more than 7% upside. “An aggressive push into the $90B+ U.S. commercial auto parts market (~5% market share) is not slowing, and remains in the early innings,” Bellinger said in a Friday report. He rates both AutoZone and O’Reilly outperform. Bellinger and his team are less upbeat about Five Below, rating it neutral and noting that the discount store chain “is now at a crossroads.” A pullback from lower-income consumers and slumping store productivity levels seem to be weighing on Five Below, and implementation of new tariffs could bring further complexity. “We see much potential in the model, yet any significant changes under a transitioning senior management team will likely take considerable time to materialize,” he said. Of 24 analysts covering Five Below, nine rate it the equivalent of buy, according to LSEG. Consensus price targets call for nearly 35% upside, but shares are off more than 54% in the past 12 months. Consumer finance plays on refunds Bank of America analysts led by Mihir Bhatia last week highlighted a handful of consumer finance companies that are sensitive to refunds. “Higher refunds should be a tailwind for consumers, particularly lower income consumers who use tax refunds for debt paydown and big-ticket purchases,” he said in a report last Thursday. In particular, he and his team called out Synchrony Financial , Bread Financial and Capital One as having the most exposure to customers who will likely use their refunds to clear debts and make down payments on costly items. Bank of America gives buy ratings to all three, which have had strong performances over the past year. Both Synchrony and Bread are up more than 50% in the past 12 months, while Capital One has surged nearly 49% in same period.
