Wedbush's Seth Basham Talks Q3 Winners, Losers With PreMarket Prep Plus

Seth Basham, a hardlines equity research analyst at Wedbush, discussed the big winners and losers from third-quarter earnings season with PreMarket Prep Plus during this week's edition of "Wednesdays With Wedbush."

Wedbush Analyst's Take: With “strong fundamental performance from a lot of companies and consumer discretionary spending picking up through October and into November, stocks moved higher off the impressive sales data,” Basham told Benzinga.

As a result, “earnings expectations really ratcheted up and sometimes the results did not meet those expectations along with guidance for the following quarter.”

That led to some massive swings in share price as the Street tempered its  expectations moving forward.

Holiday Season: When evaluating the carryover from third-quarter earnings season into the holiday, Basham considers some of the guidance provided to be extremely conservative.

"Will the consumer continue to spend as aggressively on discretionary items, and what those items will be and what categories will it be?" he asked. 

A few categories where the spending could shift could be “travel or auto repair rather than consumer electronics.”

That line of thinking may have led to the conservative guidance from Dicks Sporting Goods DKS and Best Buy BBY, he said. 

It should be noted that both of the issues were shellacked following good reports, but lackluster guidance, Basham said. 

Dick’s Conference Call: Investors should be aware that what is said during the conference call discussing earnings can have a major impact on the issue’s share price.

In the case of Dick's Sporting Goods, the conservative guidance that was provided was the result of the “unsure outlook of the consumer,” the Wedbush analyst said. 

Comapnies want to “provide a guidance that they will be able to exceed,” he said. In his opinion, this “conservatism can provide opportunity in the stock.”

Basham Cautious On Home Depot, Lowe’s: One area of the retail sector that may not stay in favor with consumers in the fourth quarter is home care and improvement. 

After the blockbuster last few years, which were the result of the consumer spending more time at home because of the pandemic, 2022 may not be the same.

As a result, Home Depot HD and Lowe’s Companies Inc. LOW have a Neutral: rating with Basham.

“2022 is going to be challenging from a growth perspective, especially as the housing market begins to slow down on a year-to-year growth basis, which is a key leading indicator of spending on home improvement,” the analyst told PreMarket Prep Plus. 

Bullish On Williams Sonoma: Basham countered the notion that Williams-Sonoma WSM may not continue to prosper due to it being a mall-based retailer.

In fact, Basham said two-thirds of its revenue comes from its online operations and that is “more scalable than other retailers.”

In addition, there “brands have become more relevant and that helps with their pricing power because of the exclusivity of their products.”

He expects Williams-Sonoma “to drive sustainable top-line growth as well as improvement in operating margins.”

Finally, investors should be aware the company “sells a lot of products to hospitality companies and other businesses.”

That could be a $1-billion business for the company this year or next, he said. 

The full discussion with Basham from Wednesday’s show can be found here:

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Posted In: Analyst ColorEarningsNewsAnalyst RatingsPreMarket PrepSeth BashamWedbush