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5 Retailers Look Strong This Earnings Season on Sector Rebound
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In spite of lingering fears associated with the coronavirus pandemic, the Retail – Wholesale sector is likely to have staged a comeback this earnings season, thanks to consumers’ increasing appetite for shopping. Clearly, things started to turn in favor following measures undertaken to support households coupled with resumption of economic activities post the lifting of lockdowns.
Factors Defining the Outcome
Consumer spending activity, one of the pivotal factors driving the economy, remains healthy in spite of the fading of initial coronavirus-relief package. Markedly, U.S. retail sales grew for the fifth straight month in September. Industry experts pointed that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, redirecting the same to retail.
Meanwhile, National Retail Federation’s chief economist, Jack Kleinhenz said, “Strong growth in retail sales during the last few months points to the resiliency of consumers even in this disruptive pandemic environment.”
While essentials and other household products remain the preference, fashion and leisure items also made their way to the shopping list. Consumers splurged on office items, video games, décor, domestics and kitchenware as they work, learn, dine and play at home now. Big-box retailers such as Walmart Inc. (WMT - Free Report) and The Home Depot, Inc. (HD - Free Report) are likely to have benefited from consumers’ shift in buying behavior and spending pattern due to the pandemic. However, mall-based retailers continue to struggle.
Keeping consumers’ product preferences and growing inclination toward online shopping in mind, retailers have been replenishing shelves with in-demand merchandise and ramping up investments in digitization. To beat the COVID-19 blues, companies have been directing resources toward advancing omni-channel capabilities, enhancing supply chain and providing faster delivery options, be it curbside pickup or delivery at home, in order to better engage with customers.
Clearly, the aforementioned factors raise optimism about the outcome of the results. However, margins remain an area to watch. Impact of investments to increase teams’ pay and benefits, and expenses on additional safety and cleansing measures owing to the coronavirus pandemic, on margins cannot be ruled out. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build more pressure on margins.
Solid Earnings Picture
Undeniably, opportunities created and challenges posed by the pandemic will be the highlight of the quarter. Meanwhile, per the latest Earnings Outlook, the sector is anticipated to witness top-line growth of 8.8%, following an increase of 8.1% in the preceding season. Again, the bottom line is expected to jump 9.3% this earnings season, following a meager 0.4% growth in the last reporting cycle.
Market pundits believe that once the coronavirus spread is contained and vaccine is discovered, the retail sector, which touches every sphere of life, is likely to proceed with great vigor. As of now, there are stocks that could be great additions to your portfolio. We have identified five retail-wholesale stocks that are likely to trump estimates this earnings season.
Making the Perfect Choice
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Prominent Picks
You may consider home improvement retailer Lowe's Companies, Inc. (LOW - Free Report) . The stock has a Zacks Rank #2 and an Earnings ESP of +2.90%. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.90, which suggests an increase of 34.8% from the prior-year quarter. Also, the Zacks Consensus Estimate for its quarterly earnings has moved up by a penny in the past 30 days. The company has a trailing four-quarter earnings surprise of 17.2%, on average. The company is scheduled to report results on Nov 18. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lowes Companies, Inc. Price, Consensus and EPS Surprise
Dollar General Corporation (DG - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +8.17%, is also worth betting on. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.97, suggesting growth of 38.7% from the prior-year quarter. Also, the consensus estimate for earnings has moved up by a couple of cents in the past seven days. This discount retailer has a trailing four-quarter earnings surprise of 21.3%, on average.
Dollar General Corporation Price, Consensus and EPS Surprise
Target Corporation (TGT - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +11.29%, is also a solid bet. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.53, suggesting growth of 12.5% from the prior-year quarter. Also, the consensus estimate for earnings has moved up three cents in the past 30 days. This general merchandise retailer has a trailing four-quarter earnings surprise of 37.6%, on average. The company is slated to announce results on Nov 18.
Target Corporation Price, Consensus and EPS Surprise
Best Buy Co., Inc. (BBY - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +14.92%. The Zacks Consensus Estimate for its third-quarter fiscal 2021 earnings is pegged at $1.69, suggesting an improvement from $1.13 reported in the prior-year quarter. Also, the consensus estimate for earnings has moved up three cents in the past 30 days. Notably, this provider of technology products, services and solutions has a trailing four-quarter earnings surprise of 33.5%, on average. The company is scheduled to report results on Nov 24.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Investors can even count on Costco Wholesale Corporation (COST - Free Report) , an operator of membership warehouses, with a Zacks Rank #3 and an Earnings ESP of +1.60%. The Zacks Consensus Estimate for its first-quarter fiscal 2021 earnings is pegged at $1.96, indicating an improvement of 13.3% from the year-ago period. Also, the Zacks Consensus Estimate for quarterly earnings has moved up by a couple of cents in the past 30 days. The company has a trailing four-quarter earnings surprise of 2.9%, on average. The company is slated to announce results on Dec 10.
Costco Wholesale Corporation Price, Consensus and EPS Surprise
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
5 Retailers Look Strong This Earnings Season on Sector Rebound
In spite of lingering fears associated with the coronavirus pandemic, the Retail – Wholesale sector is likely to have staged a comeback this earnings season, thanks to consumers’ increasing appetite for shopping. Clearly, things started to turn in favor following measures undertaken to support households coupled with resumption of economic activities post the lifting of lockdowns.
Factors Defining the Outcome
Consumer spending activity, one of the pivotal factors driving the economy, remains healthy in spite of the fading of initial coronavirus-relief package. Markedly, U.S. retail sales grew for the fifth straight month in September. Industry experts pointed that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, redirecting the same to retail.
Meanwhile, National Retail Federation’s chief economist, Jack Kleinhenz said, “Strong growth in retail sales during the last few months points to the resiliency of consumers even in this disruptive pandemic environment.”
While essentials and other household products remain the preference, fashion and leisure items also made their way to the shopping list. Consumers splurged on office items, video games, décor, domestics and kitchenware as they work, learn, dine and play at home now. Big-box retailers such as Walmart Inc. (WMT - Free Report) and The Home Depot, Inc. (HD - Free Report) are likely to have benefited from consumers’ shift in buying behavior and spending pattern due to the pandemic. However, mall-based retailers continue to struggle.
Keeping consumers’ product preferences and growing inclination toward online shopping in mind, retailers have been replenishing shelves with in-demand merchandise and ramping up investments in digitization. To beat the COVID-19 blues, companies have been directing resources toward advancing omni-channel capabilities, enhancing supply chain and providing faster delivery options, be it curbside pickup or delivery at home, in order to better engage with customers.
Clearly, the aforementioned factors raise optimism about the outcome of the results. However, margins remain an area to watch. Impact of investments to increase teams’ pay and benefits, and expenses on additional safety and cleansing measures owing to the coronavirus pandemic, on margins cannot be ruled out. Apart from these, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might build more pressure on margins.
Solid Earnings Picture
Undeniably, opportunities created and challenges posed by the pandemic will be the highlight of the quarter. Meanwhile, per the latest Earnings Outlook, the sector is anticipated to witness top-line growth of 8.8%, following an increase of 8.1% in the preceding season. Again, the bottom line is expected to jump 9.3% this earnings season, following a meager 0.4% growth in the last reporting cycle.
Market pundits believe that once the coronavirus spread is contained and vaccine is discovered, the retail sector, which touches every sphere of life, is likely to proceed with great vigor. As of now, there are stocks that could be great additions to your portfolio. We have identified five retail-wholesale stocks that are likely to trump estimates this earnings season.
Making the Perfect Choice
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Prominent Picks
You may consider home improvement retailer Lowe's Companies, Inc. (LOW - Free Report) . The stock has a Zacks Rank #2 and an Earnings ESP of +2.90%. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.90, which suggests an increase of 34.8% from the prior-year quarter. Also, the Zacks Consensus Estimate for its quarterly earnings has moved up by a penny in the past 30 days. The company has a trailing four-quarter earnings surprise of 17.2%, on average. The company is scheduled to report results on Nov 18. You can see the complete list of today’s Zacks #1 Rank stocks here.
Lowes Companies, Inc. Price, Consensus and EPS Surprise
Lowes Companies, Inc. price-consensus-eps-surprise-chart | Lowes Companies, Inc. Quote
Dollar General Corporation (DG - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +8.17%, is also worth betting on. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.97, suggesting growth of 38.7% from the prior-year quarter. Also, the consensus estimate for earnings has moved up by a couple of cents in the past seven days. This discount retailer has a trailing four-quarter earnings surprise of 21.3%, on average.
Dollar General Corporation Price, Consensus and EPS Surprise
Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General Corporation Quote
Target Corporation (TGT - Free Report) , with a Zacks Rank #2 and an Earnings ESP of +11.29%, is also a solid bet. The Zacks Consensus Estimate for its third-quarter fiscal 2020 earnings is pegged at $1.53, suggesting growth of 12.5% from the prior-year quarter. Also, the consensus estimate for earnings has moved up three cents in the past 30 days. This general merchandise retailer has a trailing four-quarter earnings surprise of 37.6%, on average. The company is slated to announce results on Nov 18.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Best Buy Co., Inc. (BBY - Free Report) also deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +14.92%. The Zacks Consensus Estimate for its third-quarter fiscal 2021 earnings is pegged at $1.69, suggesting an improvement from $1.13 reported in the prior-year quarter. Also, the consensus estimate for earnings has moved up three cents in the past 30 days. Notably, this provider of technology products, services and solutions has a trailing four-quarter earnings surprise of 33.5%, on average. The company is scheduled to report results on Nov 24.
Best Buy Co., Inc. Price, Consensus and EPS Surprise
Best Buy Co., Inc. price-consensus-eps-surprise-chart | Best Buy Co., Inc. Quote
Investors can even count on Costco Wholesale Corporation (COST - Free Report) , an operator of membership warehouses, with a Zacks Rank #3 and an Earnings ESP of +1.60%. The Zacks Consensus Estimate for its first-quarter fiscal 2021 earnings is pegged at $1.96, indicating an improvement of 13.3% from the year-ago period. Also, the Zacks Consensus Estimate for quarterly earnings has moved up by a couple of cents in the past 30 days. The company has a trailing four-quarter earnings surprise of 2.9%, on average. The company is slated to announce results on Dec 10.
Costco Wholesale Corporation Price, Consensus and EPS Surprise
Costco Wholesale Corporation price-consensus-eps-surprise-chart | Costco Wholesale Corporation Quote
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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