Pitching 4 Retail Stocks Likely to Crush Estimates This Earnings
Retailers such as Costco (COST), DICK'S Sporting (DKS), Jack in the Box (JACK) and Beacon (BECN) are likely to have benefited from consumers' eagerness to venture out, shop and dine.
Though the earnings season has reached its tail end, the main chunk of releases from the Retail-Wholesale sector is yet to come. This earnings season, the sector has been buoyant on a favorable consumer environment and endeavors undertaken at company levels to beat the COVID-19 blues. These are likely to get reflected in the quarterly top-line numbers. However, rising cost pressures amid supply-chain bottlenecks as well as labor and material shortages are putting margins in the spotlight.
Let’s Delve Deep
A steadily improving health situation and resumption of business activities as well as active social lifestyle have instilled a sense of confidence among consumers. Impressively, Americans continued with their spending spree in August and September, thanks to pent-up savings and rising wages. Per the Commerce Department, U.S. retail and food services sales grew 13.9% year over year during the month of September 2021. This followed an increase of 15.4% in August from the prior-year period.
Well, keeping in mind consumers’ product preferences, retailers have been replenishing shelves with in-demand merchandise. Companies have been emphasizing on membership programs, upgradation of store technology, shopping via mobile app and last mile delivery solutions. Expedited delivery services like doorstep delivery, curbside pickup or buy online and pick up at store as well as contactless payment gateway have been aiding in maximizing share of customers’ wallet.
However, we note that industry participants that had gained amid the pandemic-led increased at-home trend are likely to have witnessed some pullback in demand. Again, operating limitations in certain geographies due to the ongoing pandemic may have hurt sales to an extent.
It’s a known fact that the industry is currently dealing with supply chain bottlenecks and rising freight charges. The spillover effect of the same will be quite visible in the to-be-reported quarterly numbers. Also, the impact of investments to increase teams’ pay and benefits, and expenses on additional safety and cleansing measures due to the coronavirus pandemic on margins cannot be ruled out.
Making the Perfect Choice
Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Per the latest Zacks Earnings Preview, the Retail-Wholesale sector is anticipated to witness top-line growth of 8.1%, following an increase of 13.9% in the preceding season. Again, the bottom line is expected to decline marginally 0.2% this earnings season, following growth of 47.1% in the last reporting cycle.
4 Prominent Picks
Costco Wholesale Corporation COST deserves a mention. The stock has a Zacks Rank #2 and an Earnings ESP of +1.00%. The Zacks Consensus Estimate for its first-quarter fiscal 2022 earnings is pegged at $2.59. The consensus mark for earnings has increased 2% in the past seven days. The company has a trailing four-quarter earnings surprise of 7.7%, on average. Costco continues to be one of the dominant warehouse retailers based on the expanse and quality of merchandise offered. Its growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Cumulatively, these factors have been aiding in registering impressive sales numbers. The company is scheduled to report results on Dec 9.
DICK'S Sporting Goods, Inc. DKS, with a Zacks Rank #3 and an Earnings ESP of +17.35%, is worth betting on. The Zacks Consensus Estimate for its third-quarter fiscal 2021 earnings is pegged at $1.88. The consensus estimate for earnings has increased 3.9% over the past 30 days. The company has a trailing four-quarter earnings surprise of 117.4%, on average. DICK’S Sporting Goods sound fundamentals and growth efforts look impressive. Diverse category portfolio, technology advancement and omni-channel capabilities have been aiding this sporting goods retailer to capitalize on robust consumer demand across golf, outdoor activities, home fitness and active lifestyle. The company is slated to report financial numbers on Nov 23.
You may consider Jack in the Box Inc. JACK. The stock has a Zacks Rank #3 and an Earnings ESP of +5.08%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 earnings is pegged at $1.75. The consensus mark has been stable in the past 30 days. The company, which operates and franchises Jack in the Box restaurants, has a trailing four-quarter earnings surprise of 26.4%, on average. The company has been gaining from various initiatives such as regular menu innovation and increased focus on catering, delivery and marketing. It has undertaken third-party delivery channels to bolster transactions and sales by partnering with DoorDash, Postmates, Grubhub and Uber Eats. The company is slated to report results on Nov 23.
Investors can count on Beacon Roofing Supply, Inc. BECN, the distributor of residential and non-residential roofing materials, with a Zacks Rank #3 and an Earnings ESP of +6.00%. The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 earnings has increased by a couple of cents to $1.50 in the past 30 days. The company has a trailing four-quarter earnings surprise of 573.1%, on average. Beacon has been gaining from continued focus on enhancing digital platforms, disciplined cost management and strong pricing execution. Also, a robust residential backdrop is expected to drive growth. The company is slated to report financial numbers on Nov 18.
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