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ETF News And Commentary

After elections, investors’ focus has again turned to Q3 earnings, which has reached the tail end for all sectors save retail. Though about half of its total reports are yet to come, earnings for the sector reported so far have fared well.

This is especially true as total earnings for 59.3% of the sector’s total market cap are up 12.7% from the same period last year on 8.6% revenue growth with relatively lower earnings and revenue beat ratios of 54.2% and 37.5%, respectively. Investors should note that the proportion of retailers that have surpassed Q3 EPS and revenue estimates is the second lowest of all the 16 Zacks sectors, behind only Construction.

In particular, results from department stores like Kohl’s (KSS - Free Report) , Nordstrom (JWN - Free Report) , Macy’s (M - Free Report) and JC Penney (JCP - Free Report) have impressed the market thanks to tight expense control and leaner inventories that act as major catalysts even as same-store sales continue to struggle. As a result, these four stocks saw solid trading in the past week with KSS climbing 22.7%, followed by gains of 15% for JWN, 14.7% for JCP and 10.1% for Macy’s.

Added to the strength is the President-elect Trump’s policies of cutting tax and increasing infrastructure spending that should boost discretionary income and thereby result in more consumer spending. This spread optimism in the broad sector, pushing up other retail stocks as well last week (read: Trump Triumphs: Stocks & ETFs to Rock or Shock).

The smooth trading sent the retail ETF space to the green territory with SPDR S&P Retail ETF (XRT - Free Report) , Market Vectors Retail ETF (RTH - Free Report) and PowerShares Retail Fund (PMR - Free Report) rising 8.4%, 1.7% and 7.3%, respectively, over the past week. XRT and RTH have a Zacks ETF Rank of 3 (Hold) rating while PMR has a Zacks ETF Rank of 4 (Sell) rating. Since earnings are the most important drivers of stock performance, it is prudent to delve into the earnings picture of the retailers that are likely to report this week.

We have taken a closer look at the expected earnings surprises of retailers that have the potential to push the space and ETFs upward or downward in the coming days.   

A Peek into Earnings Surprises

Reports from Target (TGT - Free Report) , Lowe’s (LOW - Free Report) , Staples (SPLS - Free Report) , Wal-Mart (WMT - Free Report) and Foot Locker (FL - Free Report) will be crucial for the sector this week. Naturally, their stocks will be on investors’ radar in the coming days (see: all the Consumer Discretionary ETFs here).

Target has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, making surprise prediction difficult. According to the our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) when combined with a positive Earnings ESP implies chances of an earnings beat, while stocks with a Zacks Rank #4 or 5 (Sell rated) are best avoided. Target delivered positive earnings surprises in three of the last four quarters, with an average beat of 3.52%. The Zacks Consensus Estimate for third-quarter 2016 is 83 cents, down from 98 cents over the past three months. The stock has a VGM Style Score of A. The company is expected to report before the closing bell on November 16.

Lowe’s is also slated to report on November 16 before the market opens. It has a Zacks Rank #4 and an Earnings ESP of -1.04%. The company saw no earnings estimate revision over the past three months for the to-be-reported quarter and delivered positive earnings surprises in two of the last four quarters, with an average beat of 0.35%. The stock has a VGM Style Score of A.

Staples will likely report its earnings on November 17 before the opening bell. It has a Zacks Rank #4 but an Earnings ESP of -2.94%. The stock delivered negative earnings surprises of 0.22% over the past four quarters and saw no earnings estimate revision for the to-be-reported quarter over the past 90 days. It has a VGM Style Score of C (read: Should You Buy Retail ETFs for Q4?).

Wal-Mart has a Zacks Rank #3 and an Earnings ESP of +1.04%, indicating a reasonable chance of beating estimates this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 6.13%. Moreover, it saw solid positive earnings estimate revision of s couple of cents over the past three months for the to-be-reported quarter. Further, the stock has a top VGM Style Score of A. The company is schedule to report on November 17 before market open.

Foot Locker, which will likely reports earnings on November 18 before the opening bell, has a Zacks Rank #2 and an Earnings ESP of +0.91%, indicating higher chances of beating estimates this quarter. Though the stock saw negative earnings estimate revision of three cents over the past 90 days for the yet-to-be-reported quarter, it delivered positive earnings surprises in three of the last four quarters, with an average beat of 3.14%. Additionally, the stock has a VGM Style Score of A.  

Given the mixed earnings surprise prediction, it seems that the space might continue to see good trading in the days ahead as a big surprise from any industry player could be in store.

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