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After Macy's Crushes Earnings, Should You Buy Nordstrom Stock?

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Shares of Macy’s (M - Free Report) gained more than 11% on Wednesday after the company posted its latest quarterly financial report, surpassing estimates on the top and bottom line and raising its full-year earnings guidance. Now, with these impressive results fresh on the minds of investors, the attention will turn to industry rival Nordstrom (JWN - Free Report) .

Nordstrom’s latest results are due out after the closing bell on Thursday. Retail bulls will hope the company can match the remarkable results of Macy’s, which saw comps growth of 4.2% and improved its digital sales by double-digit percentages.

So what should we expect to see from Nordstrom when it reports on Thursday? Let’s take a closer look.

Latest Outlook

According to our latest Zacks Consensus Estimates, analysts are calling for Nordstrom to report adjusted earnings of $0.42 per share and total revenue of $3.47 billion. These results would represent year-over-year growth rates of -2.3% and +5.8%, respectively.

It is worth noting that Nordstrom’s consensus earnings projection has moved a penny higher over the duration of the quarter, indicating a slightly improved outlook from a few months ago.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that Nordstrom surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Nordstrom is currently sporting a Zacks Rank #2 (Hold) and an Earnings ESP of +5.8%. This means that the most recent estimates have been higher than the consensus. In other words, our model is suggesting that a beat is likely.

Most Recent Valuation

 

Nordstrom added about 2% on Wednesday, but before the day’s gains, it was trading at about 14.4x forward 12-month earnings. This is a slight premium to its industry’s average of 13.9x, but well within the range investors have come to expect over the past year—and actually cheaper than where the stock has been in recent months.

Surprise History

Another important thing to consider ahead of Nordstrom’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The retailer actually missed estimates in the previous quarter, but it had a solid streak of positive earnings surprises going before that.

But we like to judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Nordstrom has moved higher in four out of the previous six of these windows.

Bottom Line

Nordstrom is a Zacks Rank #2 (Buy) stock that looks even more attractive after the solid report of its top industry rival. Shares are trading at a decent valuation, and recent analyst sentiment has been strong. This should add to the anticipation for the company’s report tomorrow.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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