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Retail ETFs in Focus Ahead of Q1 Earnings

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The first-quarter earnings season has effectively come to an end for most of the sectors, save retail, more than half of which is still to report. Total earnings for the companies reported so far are down 15.1% on 11.2% revenue growth with 70.6% beating EPS estimates and 88.2% beating revenue estimates.

Investors should note that the retail space has been badly hit by pandemic-related lockdowns. This can easily be depicted by the latest data, which shows that America’s retail sales collapsed by a record 16.4% last month amid coronavirus lockdowns and a spending slump.

Retail sector results reported so far were primarily from online vendors and restaurant players. The focus now shifts to traditional brick-and-mortar retailers like Wal-Mart (WMT - Free Report) , Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) , and Target (TGT - Free Report) and store channels like Nordstrom (JWN - Free Report) , and Kohls (KSS - Free Report) that are expected to report this week. In particular, e-commerce retailers have been on a tear due to higher demand for work and play indoors due to the coronavirus pandemic (read: ETFs to Gain From Lifestyle Changes Amid Coronavirus Crisis).

As a result, retail ETFs SPDR S&P Retail ETF (XRT - Free Report) , VanEck Vectors Retail ETF (RTH - Free Report) and First Trust Nasdaq Retail ETF (FTXD - Free Report) have gained 7.5%, 1.8% and 3.3%, respectively, in the past month. Online retail ETFs Amplify Online Retail ETF (IBUY - Free Report) and ProShares Online Retail ETF (ONLN - Free Report) have climbed 20.7% and 14.3%, respectively.

Given the strong e-commerce trend, it is reasonable to be optimistic about earnings results from the above-mentioned traditional operators and their stock prices. These have the potential to push the above-mentioned ETFs upward or downward.

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A Peek Into the Earnings Lineup

Wal-Mart is scheduled to report on May 19 before market open. It has a Zacks Rank #3 and an Earnings ESP of -1.13%, indicating lower chances of beating estimates this quarter. The company saw negative earnings estimate revision of couple of cents over the past 7 days for the to-be-reported quarter and delivered average positive earnings surprise of 4.45% in the last four quarters. Additionally, the company has a VGM Score of B.

Home Depot has a Zacks Rank #3 and an Earnings ESP of +1.71%, indicating a reasonable chance of beating estimates this quarter. It saw positive earnings estimate revisions of a couple of cents for the to-be-reported quarter in the past seven days. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends for the stock. Additionally, it delivered average positive earnings surprise of 4.10% in the last four quarters and has a VGM Score of A. The company is expected to report before the opening bell on May 19 (see: all the Consumer Discretionary ETFs here).

Lowe’s is slated to report earnings before the bell on May 20. The stock has a Zacks Rank #3 and an Earnings ESP of +3.33%. The company has seen positive earnings estimate revision of a couple of cents over the past seven days for the to-be-reported quarter and delivered a negative earnings surprise of 1.74% on average over the last four quarters. The stock has a VGM Score of B.

Target is also likely to report earnings on May 20 before the opening bell. It has a Zacks Rank #4 and an Earnings ESP of -28.94%. The company saw negative earnings estimate revision of 5 cents over the past 7 days for the to-be-reported quarter and delivered average positive earnings surprise of 9.03% in the last four quarters. It has a VGM Score of B (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).

Nordstrom, which will likely report earnings on May 19 after the closing bell, has a Zacks Rank #3 and an Earnings ESP of -25.09%. It has seen positive earnings estimate revision of a couple of cents for the to-be-reported quarter in the past seven days. The company delivered negative earnings surprises of 1.88% over the past four quarters. It has a VGM Score of A.  

Kohls has a Zacks Rank #3 and an Earnings ESP of -26.79%. It saw negative earnings estimate revisions of 6 cents for the to-be-reported quarter in the past seven days. Additionally, it delivered average negative earnings surprise of 3.52% in the last four quarters and has a VGM Score of A. The company is expected to report before the opening bell on May 19.

Conclusion

With some earnings surprises in the cards, retail ETFs are expected to see smooth trading in the days ahead.

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