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Hispanic consumers spending less because of lingering fears of Trump's immigration policy, Jefferies says

Key Points
  • "Numerous" consumer companies cited weaker spending by Hispanics during the recent earnings season, according to Wall Street researchers at Jefferies.
  • Companies including Target, Foot Locker, and Wingstop have all flagged weakness in Hispanic consumer spending in the past year.
Customers wait outside during the grand opening of a Wal-Mart Stores Inc. location in Panorama City, California.
Patrick T. Fallon | Bloomberg | Getty Images

The Trump administration's crackdown on immigration policy is contributing to a slowdown in Hispanic consumer spending, according to a recent Wall Street report.

"Numerous consumer companies flagged weak spending from Hispanic consumers this earnings season," wrote researchers at Jefferies. "Weakness doesn't appear to be a result of a deteriorating macro backdrop; rather, it's likely because of uncertainty around immigration policy."

President Donald Trump's pursuit of more aggressive immigration reform has drawn criticism from many consumers and businesses for social responsibility reasons, but this report shows the new push by the administration may not make sense for another reason: It could be hurting the economy.

Companies including Target, Foot Locker, and Wingstop have all flagged weakness in Hispanics' spending in the past year. Target CEO Brian Cornell cited market research on the slowdown in Hispanics' spending in a July conference, "They are staying at home. They are going out less often. Particularly around border towns in the United States, you're seeing a change in behavior."

The Jefferies researchers noted that while some companies with significant exposure to Hispanic populations have explicitly cited a slowdown in spending, others have probably been affected, too.

Target rival Wal-Mart did not specifically note a slowdown, but "it is probable that a considerable portion of their consumer base is Hispanic given that about 20 percent of their store locations are over-indexed to states where one-third of the population is Hispanic."

Target and Wal-Mart stores are concentrated in states with high Hispanic populations, with California, Texas and New Mexico together accounting for 24 percent of Target stores and 20 percent of Wal-Mart stores in the U.S., according to the report.

But the analysts also had good news: The weakness in Hispanics' spending is probably temporary and may present a buying opportunity for stock investors.

"We assume weakness is a short term phenomenon, especially given the challenging environment for new legislation," continued the Jefferies researchers. "High Hispanic exposure may have hurt sales in the first half, but may provide an opportunity given the longer term opportunity to grow sales through expanded distribution."

The researchers included a list of stocks most exposed to metropolitan areas with at least a 25 percent Hispanic population, providing investors with ideas for firms that may rebound should Hispanics' spending rebound.

Storefront consumer stocks most exposed to cities with >25% Hispanic population