At the end of the second quarter of 2013, I reviewed a lot of
big themes. One stuck out to me as both a danger and an
opportunity. Retailers were telling us that they saw the second
half of the year was going to be challenging.
One of the keywords that tell what is going to happen in the future
is the word "challenging" - and that means it's time to sell. At
least it is in the short run.
Talking It Down
It saying that the second half was a challenging period, they noted
that the potential for government shutdown was high and that the
consumer may be tapped out from expensive oil prices. Both of those
ideas led to Wall Street analysts lowering numbers across the board
as expectations fell.
One of those ideas has more or less played out, with about a two
week shutdown and eventual game of kick the can getting played. The
other idea has seen a fairly large decrease in oil prices. Both
situations point to a positive impact on consumer spending when the
initial thought was that the consumer was tapped out.
Recent Strong Reports
just reported a solid quarter and that saw the stock jump by about
10% intraday. Other bigger retailers like
has provided good data points as well with strong same store sales
In the coming weeks we will see several other big box and mall
anchor stores reporting earnings. I want to focus on two names that
I like that both have Zacks Ranks of #2 (Buy). That strong rank
tells me that analysts have been raising, not lowering earnings
estimates of late. his helps me know that the experts that follow
these stories closely are confident about these names are earnings
in retailers heat up.
) isn't a dollar store, it's more like a $5 store. So there isn't a
focus on those $0.60 and $0.70 items that are being sold for $1.
Instead, this retailer is looking at larger average ticket prices
via items that are not likely to be found at the dollar stores.
FIVE has a great history of beating the number. Over the last five
quarters, they have a 100% rate of posting a positive earnings
surprise. What's more, the company has also beat the top line
number each instance that there was a Zacks Consensus Revenue
Over the last three months, the Zacks Consensus Estimate for 2013
has seen a number of upward revisions. Starting at $0.69 in August,
an increase hit in September taking the number to $0.72. Another
penny increase brings us to the current level of $0.73.
The 2014 estimates look even better. The moved from $0.93 in August
to $0.97 in September and another penny higher in October. More
recently, the estimate has ticked higher by another cent to the
current level of $0.99. That gives the stock an implied growth rate
of more than 35%.
The company is expected to report earnings on November 25.
The price and consensus chart above shows that estimates have been
driving the stock higher.
) is another Zacks Rank #2 (Buy) stock that I like given the
improving climate for retailers.
The recent strong news out of Best Buy is something that should
also be seen at Conn's stores as they are core competitors. The
stock has also seen a fair amount of institutional interest over
the last few months as well.
CONN has had a good history of beating the number, with four beats
in the last six reports. The other two reports were an inline
report and a big miss. That big miss came last quarter and
following the report the stock fell by 22%.
The reason behind the miss was a dramatic increase in the company's
credit profile as a glitch in its software didn't remind its
collections department to call customers that were either due or
past due on payments. That issue is being addressed or has been
according to many recent research reports.
The company is expected to report earnings again the first week of
Talking down the markets expectations for the second half has
created a very low bar for retailers to jump over. Sticking with
stocks that have a high Zacks Rank give you the best chance for
success as you see the industry fundamentals improve.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
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