Benzinga Weekly Preview: Putin And Poroshenko Set To Discuss A Peace Plan

Ukraine will be in the spotlight next week as Russian President Vladimir Putin finally meets with his Ukrainian counterpart, Petro Poroshenko.

German Chancellor Angela Merkel will also travel to Ukraine to help find a lasting solution to end the nation’s ongoing crisis. With Russia and the West caught up in a sanctions war over the situation in Ukraine, the talks are an important milestone in Ukraine’s crisis.

Key Earnings Reports

Next week investors will be waiting for several key earnings reports including Best Buy BBY, Dollar General DG, Abercrombie & Fitch ANF and Tiffany & Co TIF.

Best Buy

Best Buy is expected to report second quarter EPS of $0.32 on revenue of $9.01 billion, compared to last year’s EPS of $0.32 on revenue of $9.30 billion.

On August 16, S&P Capital IQ gave Best Buy a Hold rating with a $25.00 price target. The analyst team at S&P sees mixed results as the company attempts to compete with its online counterparts.

“We see BBY taking action to improve service and reduce costs in an attempt to compete profitably with Internet retailers as the consumer electronics category migrates online. We expect mixed results in light of an intensely competitive environment, and we think necessary price investments and ongoing deflation in certain categories will limit the beneficial impact of effective cost management.”

On June 11, Credit Suisse gave Best Buy an Outperform rating with a $40.00 price target. The analysts at Credit Suisse see the company thriving due to its inventive business strategy.

“One of the concerns about brick and mortar retailing is that store rent, an essentially fixed cost in the near term, is similar to a ball and chain around a retailer's neck, a cost that becomes heavier as traffic and productivity decline. Yet one retailer, Best Buy, has figured out how to turn this into an advantage by renting out the space to its primary suppliers, not only reducing rent and employee costs, but creating a better shopping experience for customers. Yesterday at Best Buy's annual meeting, Hubert Joly commented on the success of the store-within-a-store and strongly indicated that we will see more of this. We view this as one of the more insightful changes this superb management team has instituted at BBY.”

On August 14, Merrill Lynch gave Best Buy a Buy rating with a $36.00 price objective, noting that upcoming product cycles will likely benefit the company in the near term.

“We forecast 2Q EPS of $0.28 versus $0.32 last year and consensus of $0.32. Our estimate could be conservative and we note that continued outperformance in expense reduction could offset soft comps. While 2Q and 3Q will likely be impacted by a relative lack of new products coming to market, industry trends should fare much better in 4Q and into 2015. In particular, we expect a TV cycle driven by 4K sets (which boast 4x the resolution of HD TVs). BBY stands to benefit from meaningful product cycles in TV’s, gaming and appliances.”

Dollar General Corporation

Dollar General is expected to report second quarter EPS of $0.83 on revenue of $4.77 billion, compared to last year’s EPS of $0.77 on revenue of $4.39 billion.

On August 21, S&P Capital IQ gave Dollar General a Sell rating with a $59.00 target price, noting that the company’s customer base has remained conservative about spending.

“We believe DG will face more intense competition in FY 15 after its closest peer Family Dollar (FDO 66, Sell) reported negative comparable store sales growth during the holiday and winter seasons and a negative outlook for the fiscal year. Additionally, we believe the company's core low-income customer remains under intense economic pressure due to a weak job growth market and following cuts to Supplemental Nutrition Assistance Program benefits.”

On August 18, Credit Suisse upgraded its rating for Dollar General from Neutral to Outperform with a $74.00 price target shortly following the company’s bid to buy Family Dollar.

“We are upgrading DG to Outperform from Neutral and raising our target price to $74 from $59 to reflect the company's announced bid for FDO. While not yet accepted by FDO and the eventual purchase price could be higher if DLTR counters, we believe there is a strong likelihood of DG eventually winning the asset now that their interest has been confirmed and see the combination creating significant value for shareholders. DG clearly has the ability to pay much more than DLTR, as we estimate synergies could approach $1 billion in cost and revenue benefits and see accretion at $1-2 per share. We also believe this combination makes much better strategic sense than a DLTR/FDO deal and it would clearly provide the next leg to what has already been one of the most attractive investments in retail.”

On August 18, Merrill Lynch gave Dollar General a Buy rating with a $73.00 price objective, taking into consideration the company’s proposal to acquire Family Dollar.

“Dollar General announced today a proposal to acquire Family Dollar for $78.50 per share in cash, in a transaction valued at $9.7bn on an EBITDA multiple of 11.6x. The offer is greater than the $74.50 offer by DLTR announced on July 28th, 2014and would be an all cash deal vs. DLTR’s cash/stock offer. DG stated it has already secured committed financing of $12.3bn including a revolver, term loan, and notes. The financing would also include the $305mn termination fee payable to DLTR. DG’s adjusted debt to EBITDAR would be 5.5x and the company believes it could return to investment grade within 3 years. The company estimates that the proposed transaction would be low DD accretive to earnings in the first year.”

Abercrombie & Fitch Company

Abercrombie & Fitch is expected to report second quarter EPS of $0.11 on revenue of $909.22 million, compared to last year’s EPS of $0.14 on revenue of $945.70 million.

On August 16, S&P Capital IQ gave Abercrombie & Fitch a Hold rating with a $42.00 price target, noting that the company’s shares are currently quite fairly valued.

“We view the shares as fairly valued at recent levels, as ANF navigates a transition period amid intensifying competition in the U.S. from fast-fashion retailers such as Forever 21 and H&M. We think it is particularly crucial for the company to improve the fashion of its female business. While we think ANF needs to invest more in differentiated fashions and store remodels to regain a competitive edge, we look for expense cuts and ongoing rationalization of ANF's U.S. store base to support higher sales productivity and margin recovery in FY 2015. Also, we are encouraged by a continued strong growth trajectory for the DTC business.”

On July 31, Merrill Lynch gave Abercrombie & Fitch a Neutral rating, noting that the company’s clothing has finally caught up with current fashion trends.

“Abercrombie has been slow to react to fashion changes in the women’s department and we view the new Fall assortment as the biggest change that we have seen at the brand in years. The addition of the color black, a more feminine aesthetic and a lack of logo were the biggest changes. The new fashion was priced higher than fast fashion competition, but we expect it to be put on promotion at strategic times. Still, we think the new look will attract some interest.”

Tiffany & Co

Tiffany & Co is expected to report second quarter EPS of $0.85 on revenue of $987.86 million, compared to last year’s EPS of $0.83 on revenue of $925.88 million.

On August 16, S&P capital IQ gave Tiffany & Co a Hold rating with a $100.00 target price, noting that the company’s shares are currently fairly valued.

“We view the shares as reasonably valued at recent levels. In the quarter ended April 30, 2014, worldwide same-store sales (on a constant currency basis) increased 11%. By region, same-store sales rose 8% in the Americas, 30% in Japan, 18% in the U.A.E., and 10% in Asia-Pacific, but were down 35 in Europe. Through retail, product and marketing investments, we see TIF successfully growing its global high end customer base, which is supporting strong sales of statement, fine and solitaire jewelry (i.e., higher priced jewelry with diamonds and/ or other gemstones).We also believe the company is attracting new customers through its lower priced fashion jewelry assortment.”

On August 13, Credit Suisse gave Tiffany & Co an Outperform rating with a $104.00 price target, pointing out the company could face some headwinds from Asia.

“We are concerned about broad-based evidence of slowing demand trends in APAC, particularly soft Macau casino revenue, weak Hong Kong watch and jewelry sales, tepid Swiss watch exports, and softness in fine wine and liquor sales. Perhaps the clearest indicator lies in watch and jewelry sales in Hong Kong, where April/May/June 2014 sales are down an average of 30% Y/Y. Some of this decline is due to lapping of heavy gold buying on favorable pricing last year, but we see potential for spillover into high-end jewelry and watch purchasing. Swiss watch exports also remain weak, with 2Q sales up a modest 1.4% (up 2% in Hong Kong) versus 4.1% growth in 1Q (7% Hong Kong).”

On July 2, Merrill Lunch gave Tiffany & Co a Buy rating with a $115 price objective, saying that improving consumer spending in the U.S. could have positive effects on the company.

“Our Price Objective for Tiffany of $115 is based on a P/E multiple of 24x our F2015 EPS estimate. This represents a premium to the luxury peer group average of 19x. We think a premium is justified given reaccelerating US trends, an immature business in key regions where other luxury companies are struggling to grow, and the outsized growth potential of watches and fashion jewelry versus peers. Risks to our PO: further deceleration in Asian and European comps, Yen headwinds, commodity cost increases, deteriorating health of the global luxury consumer.”

Economic Releases

Next week will be a busy week for economic releases with the U.S. set to put out several important reports. Housing data is expected to show a rebound in new home sales, but home prices likely increased more slowly.

Daily Schedule

Monday

• Earnings Releases Expected:  CNinsure CISG, Adept Technology ADEP, OSI Systems OSIS
• Economic Releases Expected: U.S. new home sales, U.S. services PMI, German Ifo business climate index

Tuesday

• Earnings Expected: Bob Evans Farms BOBE, Analog Devices ADI, TiVo TIVO, Best Buy BBY, DSW DSW Sanderson Farms SAFM
• Economic Releases Expected: U.S. consumer confidence, U.S. house price index, U.S. Redbook, U.S. durable goods orders

Wednesday

• Earnings Expected: The Wet Seal WTSL, Express EXPR, Tiffany & Co TIF
• Economic Releases Expected:  U.S. oil inventory data, German consumer climate, Italian consumer confidence

Thursday

• Earnings Expected From: Abercrombie & Fitch ANF, Dollar General DG, Genesco GCO, Constellium NV CSTM
• Economic Releases Expected:  Japanese retail sales, Japanese industrial production, Japanese unemployment rate, British consumer confidence, U.S. GDP, eurozone consumer confidence, German unemployment rate, Spanish GDP

Friday

• Earnings Expected From: Noodles & Co. NDLS
• Economic Releases Expected: U.S. Consumer Sentiment, Canadian GDP, Italian GDP, Italian CPI, eurozone unemployment rate, eurozone CPI, German retail sales, Spanish retail sales, Japanese housing starts