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5 Retailers Likely to Emerge Winners This Earnings Season

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The recent volatility in the Wall Street rattled even the most ardent of investors, who started taking stock of their portfolio, overlooking the impressive earnings display by corporates for a while. Nevertheless, market for now seems to have somewhat settled trying to accommodate rising bond yields and a possible uptick in inflation with the backdrop dominated by the latest tax reform and healthy economic growth.

Well, after the action-packed phase, the focus is back on the reporting cycle. The earnings season is in full swing, with results from more than 340 S&P 500 members out by now. But the main highlight of the show is yet to come for the Retail-Wholesale sector.

How Is the Sector Faring?

The Retail-Wholesale sector, which currently occupies the top 6% (1 out of 16) position in the list of 16 Zacks sectors, has advanced approximately 27% in a year and comfortably outperformed the S&P 500’s growth of roughly 14%. Moreover, according to the latest Earnings Trends, the sector is expected to record top and bottom-line growth of 8.9% and 7.2%, respectively, this earnings season.

Favorable economic indicators along with friendlier fiscal and regulatory policies from the current regime bode well for the sector. Industry experts are of the opinion that gradual wage acceleration, a 17-year low unemployment rate and rising consumer confidence are enough to trigger consumer spending, which accounts for more than two-thirds of U.S. economic activity.

For obvious reasons, retailers are the end gainers. Moreover, National Retail Federation’s recent projection of an uptick in U.S. retail sales of 3.8-4.4% this year raises optimism. In addition, the recent cut in corporate tax rate will allow retailers to channelize the surplus money toward best possible alternatives. They may opt for a dividend hike or reduce debt load, or even create a corpus to fund acquisitions, otherwise invest in omni-channel capabilities, product launches and other innovations.

Picking the Probable Winners This Season

We used the Zacks methodology and identified retail stocks that not only boast solid fundamentals but are also poised to beat estimates this earnings season. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%.

Thus, investors can count on these stocks which are most likely to trump estimates.

Dillard's (DDS - Free Report) , a fashion apparel, cosmetics, and home furnishing retailer, is a lucrative pick. The company is expected to announce fourth-quarter fiscal 2017 results on Feb 20. The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.73. The company registered a whooping positive earnings surprise of more than 100% in the preceding quarter. The stock has an Earnings ESP of +4.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy's (M - Free Report) is also worth a bet with a Zacks Rank #2 and an Earnings ESP of +0.92%. The Zacks Consensus Estimate for the quarter’s earnings is $2.66. In the last two quarters, the company outperformed the consensus mark. It has a long-term earnings growth rate of 8.5%. This department store retailer is slated to report fourth-quarter fiscal 2017 results on Feb 27.

Dollar Tree (DLTR - Free Report) , which is expected to report fourth-quarter fiscal 2017 results on Mar 7, is a solid bet with a long-term earnings growth rate of 13.3%. The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.88. The company delivered an average positive earnings surprise of 7.4% in the trailing four quarters. This operator of discount variety stores has a Zacks Rank #2 and an Earnings ESP of +1.86%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You may also consider Costco Wholesale (COST - Free Report) , with a Zacks Rank #3 and an Earnings ESP of +3.47%. The Zacks Consensus Estimate for the quarter’s earnings stands at $1.45. The company delivered positive earnings surprises in the last three quarters. It has a long-term earnings growth rate of 9.1%. This operator of membership warehouses is scheduled to come up with second-quarter fiscal 2018 financial results on Mar 7.

We also suggest looking into Tiffany (TIF - Free Report) , which is expected to report fourth-quarter fiscal 2017 results on Mar 16. This designer, manufacturer and retailer of jewelry has a Zacks Rank #3 and an Earnings ESP of +0.89%. The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.62. The company has a long-term earnings growth rate of 11.2% and has delivered an average positive earnings surprise of 5.3% in the trailing four quarters.

These stocks are not the only ones worth a gamble. With the help of the Zacks Stock Screener and some permutation and combination, you can find other retail stocks that are gearing up to post a beat this earnings season.

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