Retail Stocks: Poised to Pop - Investment Ideas
October 19 2011 - 8:00PM
Zacks
Say what you will, consumers aren't listening...and that's a good
thing.
A couple months ago stocks dropped off of a cliff as investors
began fretting over the economy heading back into a recession.
Citing slower growth in coming quarters, a stagnant labor market,
and any number of data points that would back them up.
News from the European Union also has the market in a
hammerlock. Headlines alone have sparked 3% swings in both
directions. That has many on edge and quick to sell assets.
Falling on Deaf Ears
Now, I'm not saying those faceless consumers, i.e. you and me,
don't care about the possibility of tougher times ahead, but they
certainly aren't acting like they do.
Surveys are showing that those issues do weigh on our minds.
Last week the Thomson Reuters/University of Michigan consumer
sentiment reading slipped, unexpectedly, falling short of analyst
expectations.
But, that didn't seem the change anyone's spending habits.
Retail sales last month were up 1.1%, about 40 basis points higher
than expected. So, if consumers are worried, maybe they are just
coping by treating themselves.
Cha Ching!
Who knows the real reasons for the disconnect, but it does mean
we could see a great quarter for retailers. The industry was hit
pretty hard, because most assumed discretionary spending would be
reined in.
Maybe some have, but the data isn't showing that. So, here are a
few retailers that could have a strong finish to 2011.
Tractor Supply Co (TSCO) is no stranger to most,
constantly setting new all-time highs over the past couple years.
The company focuses on rural markets in the U.S., offering a wide
variety of products from home decor and clothing to truck and farm
equipment.
Just yesterday, the company beat Wall Street's forecast for
sales and earnings, then went on to raise the outlook for the rest
of the year. The low end of TSCO's sales and earnings guidance is
now above the current consensus for both figures. Same store sales
jumped almost 12%. EPS came in at $0.58, up 35% and 6 cents above
the Zacks Consensus Estimate.
Shares jumped about 8% on the news.
Select Comfort (SCSS) probably didn't do that well, I
mean who is mattress shopping in a shaky economy?
Apparently, a lot of people. And these aren't your
run-of-the-mill mattresses; the company offers its signature "Sleep
Number" beds that offer adjustable firmness on each side and come
with a pretty hefty price tag.
SCSS also came in well ahead of expectations yesterday, with EPS
of $0.31 compared to the $0.27 that analysts were looking for. The
company also went on to raise guidance and is seeing double-digit
revenue growth.
The stock soared 20% on the earnings surprise.
Looking Ahead
Those are just 2 examples and they already posted surprises.
However, there are plenty of retailer and discretionary stocks on
deck if you're looking to get in ahead of a report.
Dick's Sporting Goods, Inc (DKS) is not coming up for a
few weeks, but could benefit from surprising consumer spending
trends. Shares are a Zacks #1 Rank (Strong Buy).
Maybe casinos are doing better than expected. Plenty are set to
report in the next week or 2, including Ameristar Casinos
(ASCA) which is due up on Nov 3. Estimates are rising into the
number, which is a great sign. Pinnacle Entertainment (PNK)
is also seeing upward earnings revisions ahead of its earnings
release next week.
Follow the Money
Consumers are spending, despite their economic worries. So, if
sales have been above expectations recently, that means there
should be plenty of earnings surprises for companies that rely on
consumer spending. There are a few examples above, but hundreds
more are out there. Roll up your sleeves and dig in.
Bill Wilton is the Aggressive Growth Stock Strategist for
Zacks.com. He is also the Editor in charge of the Zacks Home Run
Investor service
AMERISTAR CASIN (ASCA): Free Stock Analysis Report
DICKS SPRTG GDS (DKS): Free Stock Analysis Report
PINNACLE ENTRTN (PNK): Free Stock Analysis Report
SELECT COMFORT (SCSS): Free Stock Analysis Report
TRACTOR SUPPLY (TSCO): Free Stock Analysis Report
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