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These 4 Retail Stocks are Forecast to Beat Earnings Estimates
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This week, a number of economically important retail companies are set to report quarterly earnings. A few of them have so far put up impressive performances this year, while one of them has significantly lagged the industry and broad market.
With falling but still high inflation and macroeconomic uncertainty, the consumer has been feeling far more financial pressure since the post-Covid boom. Not surprisingly, based on this development, the retailers prioritizing discount goods over discretionary have stood out as the leaders.
Earnings Predictions
In addition to the Zacks Rank, the Zacks Earnings ESP is another of Zack’s many tools for investors to improve their trading performance. The Zacks ESP (Expected Surprise Prediction) looks to find companies that have recently seen positive earnings estimate revision activity. The idea is that more recent information is, generally speaking, more accurate and can be a better predictor of the future, which can give investors an advantage in earnings season.
The technique has proven to be very useful for finding positive surprises. In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time, while they also saw 28.3% annual returns on average, according to our 10 year backtest.
Earnings Beats on the Horizon
Retail is an incredibly challenging industry, and this year more than ever has demonstrated to investors what works and what doesn’t. In the chart below we can see what a widespread in performances these various stocks have had in the last three years.
Interestingly, regardless of the recent action in these stocks, all of them are forecast to beat earnings estimates, showing that analysts have formed a more bullish position on retail in the last few weeks.
Image Source: Zacks Investment Research
Walmart
Walmart (WMT - Free Report) has been the leader so far this year, rallying 20.3% YTD, and boasting a Zacks Rank #2 (Buy) rating. Earnings estimates have been slowly, but surely trending higher over the past two months.
Additionally, the Zacks ESP is forecasting a 0.8% beat this quarter. Walmart reports earnings Thursday, November 16 before the market opens.
Image Source: Zacks Investment Research
Walmart seems to be firing on all engines this year, with its positioning in the discount space pulling many consumers to its grocery store, while also significantly expanding its e-commerce operation.
Comp sales at the retail giant have continuously gained this year thanks to updated store design and the extremely competitive prices offered by the store. Additionally, its omnichannel strategy has been a smashing success. E-commerce sales surged 24% YoY in Q2 and now make up 15% of total sales.
It should be noted that Walmart is trading near its highest relative valuation in the last decade. With a forward earnings multiple of 26x, it is above the broad market, and above its 10-year median of 20.2x.
Image Source: Zacks Investment Research
The TJX Companies
The TJX Companies (TJX - Free Report) have also benefitted from its discount pricing strategy, supporting the 18% YTD gain in the stock.
The TJX Companies is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The company’s broad range of assortments at varying prices helps it to reach out to a range of consumers.
In addition to this, The TJX Companies tries to attract consumers through rapid turn of inventories. As of Jul 29, 2023, the company operated a total of around 4,900 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and five e-commerce sites.
TJX currently has a Zacks Rank #3 (Hold) rating, reflecting mixed earnings revisions. Current quarter sales are expected to grow 7.3% YoY to $13 billion, while EPS are forecast to climb 12.8% YoY to $0.97 per share.
The TJX Companies report quarterly earnings on Wednesday, November 15 before the market opens and the Zacks ESPis projecting a 2.6% earnings beat.
TJX is trading at a one year forward earnings multiple of 24.6x, which is above the market average and above its 10-year median of 21.4x.
Image Source: Zacks Investment Research
Ross Stores
Ross Stores (ROST - Free Report) too has benefitted from the discount retail trend as its shares have gained 10% YTD. Ross Stores enjoys a Zacks Rank #2 (Buy), reflecting upward trending earnings revisions. Additionally, the Zacks ESP is forecasting a 2.08% earnings beat at the meeting Thursday, November 16 after the market closes.
Ross Stores operates as an off-price retailer of apparel and home accessories, primarily in the United States. The company operates its stores under the Ross Dress for Less (Ross) and dd’s DISCOUNTS names. The company’s stores are located mostly in community and neighborhood shopping centers in heavily populated urban and suburban areas.
Ross Stores primarily offers in-season, branded, and designer apparel, footwear, accessories and other home-related merchandise for everyone in the family. This format primarily targets middle-income households. Prices offered at Ross are generally 20% to 60% below the regular prices of most department and specialty stores.
Ross Stores is trading at a one year forward earnings multiple of 23.4x, which is above the broad market average, and above its 10-year median of 21.6x.
Image Source: Zacks Investment Research
Target
Target(TGT - Free Report) has been the clear loser this year as the stock has sold off by -23.7% YTD. As the consumer pulls back on discretionary spending, especially from the more premium brands, Target has seen a considerable drop in comp sales. An increase in SG&A expenses this year has only compounded the issue, as it has further compressed margins.
Target has a Zacks Rank #4 (Sell) rating, indicative of falling earnings estimates. However, the Zacks Earnings ESP is expecting an earnings beat of 1.97%, an encouraging development. Target reports earnings Wednesday, November 15 before the market opens.
Furthermore, TGT is trading at a one year forward earnings multiple of 14.2x, which is well below the market average and its 10-year median of 16.3x. Now that Target is trading below its average relative valuation it is starting to look like a more appealing investment, but I investors would be prudent to wait for the earnings estimates to begin trending higher. Waiting for a higher Zacks Rank could be a fantastic buy signal in the future for TGT.
Image Source: Zacks Investment Research
Bottom Line
While there has been some divergence in performance over the last few years, there is no doubt that these are some of the best retailers in the market today.
Over the past decade, The TJX Stores and Ross Stores have outperformed the market index, compounding annually at 12.8% and 13% respectively versus the market’s 12%. Walmart and Target have a CAGR of 10.1% and 8.3% respectively over that period, which although below the market is still respectable.
Naturally, the state of the economy and especially the consumer is going to be critical to the future performance of these stocks, and the earnings they report this week should provide some valuable insight into the health of the consumer.
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These 4 Retail Stocks are Forecast to Beat Earnings Estimates
This week, a number of economically important retail companies are set to report quarterly earnings. A few of them have so far put up impressive performances this year, while one of them has significantly lagged the industry and broad market.
With falling but still high inflation and macroeconomic uncertainty, the consumer has been feeling far more financial pressure since the post-Covid boom. Not surprisingly, based on this development, the retailers prioritizing discount goods over discretionary have stood out as the leaders.
Earnings Predictions
In addition to the Zacks Rank, the Zacks Earnings ESP is another of Zack’s many tools for investors to improve their trading performance. The Zacks ESP (Expected Surprise Prediction) looks to find companies that have recently seen positive earnings estimate revision activity. The idea is that more recent information is, generally speaking, more accurate and can be a better predictor of the future, which can give investors an advantage in earnings season.
The technique has proven to be very useful for finding positive surprises. In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time, while they also saw 28.3% annual returns on average, according to our 10 year backtest.
Earnings Beats on the Horizon
Retail is an incredibly challenging industry, and this year more than ever has demonstrated to investors what works and what doesn’t. In the chart below we can see what a widespread in performances these various stocks have had in the last three years.
Interestingly, regardless of the recent action in these stocks, all of them are forecast to beat earnings estimates, showing that analysts have formed a more bullish position on retail in the last few weeks.
Image Source: Zacks Investment Research
Walmart
Walmart (WMT - Free Report) has been the leader so far this year, rallying 20.3% YTD, and boasting a Zacks Rank #2 (Buy) rating. Earnings estimates have been slowly, but surely trending higher over the past two months.
Additionally, the Zacks ESP is forecasting a 0.8% beat this quarter. Walmart reports earnings Thursday, November 16 before the market opens.
Image Source: Zacks Investment Research
Walmart seems to be firing on all engines this year, with its positioning in the discount space pulling many consumers to its grocery store, while also significantly expanding its e-commerce operation.
Comp sales at the retail giant have continuously gained this year thanks to updated store design and the extremely competitive prices offered by the store. Additionally, its omnichannel strategy has been a smashing success. E-commerce sales surged 24% YoY in Q2 and now make up 15% of total sales.
It should be noted that Walmart is trading near its highest relative valuation in the last decade. With a forward earnings multiple of 26x, it is above the broad market, and above its 10-year median of 20.2x.
Image Source: Zacks Investment Research
The TJX Companies
The TJX Companies (TJX - Free Report) have also benefitted from its discount pricing strategy, supporting the 18% YTD gain in the stock.
The TJX Companies is a leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The company’s broad range of assortments at varying prices helps it to reach out to a range of consumers.
In addition to this, The TJX Companies tries to attract consumers through rapid turn of inventories. As of Jul 29, 2023, the company operated a total of around 4,900 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and five e-commerce sites.
TJX currently has a Zacks Rank #3 (Hold) rating, reflecting mixed earnings revisions. Current quarter sales are expected to grow 7.3% YoY to $13 billion, while EPS are forecast to climb 12.8% YoY to $0.97 per share.
The TJX Companies report quarterly earnings on Wednesday, November 15 before the market opens and the Zacks ESP is projecting a 2.6% earnings beat.
TJX is trading at a one year forward earnings multiple of 24.6x, which is above the market average and above its 10-year median of 21.4x.
Image Source: Zacks Investment Research
Ross Stores
Ross Stores (ROST - Free Report) too has benefitted from the discount retail trend as its shares have gained 10% YTD. Ross Stores enjoys a Zacks Rank #2 (Buy), reflecting upward trending earnings revisions. Additionally, the Zacks ESP is forecasting a 2.08% earnings beat at the meeting Thursday, November 16 after the market closes.
Ross Stores operates as an off-price retailer of apparel and home accessories, primarily in the United States. The company operates its stores under the Ross Dress for Less (Ross) and dd’s DISCOUNTS names. The company’s stores are located mostly in community and neighborhood shopping centers in heavily populated urban and suburban areas.
Ross Stores primarily offers in-season, branded, and designer apparel, footwear, accessories and other home-related merchandise for everyone in the family. This format primarily targets middle-income households. Prices offered at Ross are generally 20% to 60% below the regular prices of most department and specialty stores.
Ross Stores is trading at a one year forward earnings multiple of 23.4x, which is above the broad market average, and above its 10-year median of 21.6x.
Image Source: Zacks Investment Research
Target
Target (TGT - Free Report) has been the clear loser this year as the stock has sold off by -23.7% YTD. As the consumer pulls back on discretionary spending, especially from the more premium brands, Target has seen a considerable drop in comp sales. An increase in SG&A expenses this year has only compounded the issue, as it has further compressed margins.
Target has a Zacks Rank #4 (Sell) rating, indicative of falling earnings estimates. However, the Zacks Earnings ESP is expecting an earnings beat of 1.97%, an encouraging development. Target reports earnings Wednesday, November 15 before the market opens.
Furthermore, TGT is trading at a one year forward earnings multiple of 14.2x, which is well below the market average and its 10-year median of 16.3x. Now that Target is trading below its average relative valuation it is starting to look like a more appealing investment, but I investors would be prudent to wait for the earnings estimates to begin trending higher. Waiting for a higher Zacks Rank could be a fantastic buy signal in the future for TGT.
Image Source: Zacks Investment Research
Bottom Line
While there has been some divergence in performance over the last few years, there is no doubt that these are some of the best retailers in the market today.
Over the past decade, The TJX Stores and Ross Stores have outperformed the market index, compounding annually at 12.8% and 13% respectively versus the market’s 12%. Walmart and Target have a CAGR of 10.1% and 8.3% respectively over that period, which although below the market is still respectable.
Naturally, the state of the economy and especially the consumer is going to be critical to the future performance of these stocks, and the earnings they report this week should provide some valuable insight into the health of the consumer.