3 Retailers to Top Earnings Estimates - Earnings ESP

3 Retailers to Top Earnings Estimates

 

The year 2014 opened on a soft note, given the not-so-convincing emerging economies and a severe winter that locked consumers indoors. However, following the improvement in weather conditions through the second half of February and a better job scenario, the business for U.S. retailers started to look optimistic.

 

The outlook for the U.S. economy appears promising, with recent data indicating at a rebound in growth after the slump in the first quarter. A rebound of economic activity can be witnessed after looking at the current unemployment data and rising home prices.

 

The unemployment rate fell to 6.3% in April – the lowest level since Sep 2008 and down from 6.7% in March. Moreover, the U.S. employers have added a robust 288,000 jobs in April – the highest in two years.

 

Separately, the U.S Department of Labor reported that seasonally adjusted initial claims decreased 24,000 to 297,000 in the week ending May 10 from 321,000 in the week ending May 3. The decline in weekly applications for unemployment benefits was also more than the consensus expectation of initial claims decreasing to 317,000.

 

Furthermore, the Federal Reserve recently lowered its asset buying to $45 billion under its Stimulus Program, marking its fourth straight $10 billion cut. Last week's U.S. consumer inflation reading of 2% in April 2014 also showed some momentum, pushing it in the Fed's desired direction.

 

According to the National Retail Federation's NRF monthly economic review published on Feb 6, 2014, retail industry sales (excluding automobiles, gas stations and restaurants) are projected to grow 4.1% for 2014, modestly higher than the preliminary 3.7% growth registered in 2013. All these factors reinforce the view that the U.S. economy is emerging from the winter slump and is braced to deliver an improved show in the current quarter.

 

Retail, owing to its huge spectrum, remains a lucrative investment avenue for investors. The sector reflects consumer spending trends, an important parameter to gauge the health of the economy. Thus, betting on future winners from this sector would be a good decision.

 

How to Choose Right Stocks?

 

Picking the best stocks from the Non-Food Retail/Wholesale space for one's portfolio is not a fairly simple task. However, an easy way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.

 

Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

 

For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:

 

L Brands, Inc. LB: This is a Zacks Rank #3 stock with an earnings ESP of +1.96%. The current Zacks Consensus Estimate for first-quarter fiscal 2014 is pegged at 51 cents per share. This Columbus, OH-based apparel retailer had registered positive earnings surprise over the trailing four quarters with an average beat of +4.80%, and has a long-term earnings expectation of 12.3%. 

 

-- The company is expected to report results on May 21, 2014.

 

The Gap, Inc. GPS: This is a Zacks Rank #3 stock with an earnings ESP of +1.79%. The current Zacks Consensus Estimate for first-quarter fiscal 2014 is pegged at 56 cents per share. This San Francisco-based apparel retailer had registered positive earnings surprise over the trailing four quarters with an average beat of +2.45%, and has a long-term earnings expectation of 12.3%. 

 

-- The company is expected to report results on May 22, 2014.

 

Tiffany & Co. TIF: This is a Zacks Rank #3 stock with an earnings ESP of +1.30%. The current Zacks Consensus Estimate for first-quarter fiscal 2014 is pegged at 77 cents per share. This New York City-based jewelry retailer had registered positive earnings surprise over the trailing four quarters with an average beat of +16.70%, and has a long-term earnings expectation of 13.3%. 

 

-- The company is expected to report results on May 21, 2014.