Technology

4 Retail Stocks Likely to Outshine This Earnings Season

The quarterly reports of companies in the Retail-Wholesale sector are likely to reflect benefits from constant omnichannel initiatives, brand introduction, store expansion and remodeling, and efforts to enhance delivery services. Additionally, efficient pricing actions, and marketing and loyalty programs are likely to have worked in favor the industry participants. These endeavors help retailers in keeping pace with the evolving consumer environment and counter hurdles related to soft brick-and-mortar traffic.

Again, strengthening labor market and rising disposable income are likely to have aided consumers’ buying capacity, which is a key driver for the consumer-driven retail space. This is likely to reflect on the top-line numbers of the companies.

However, one cannot ignore the fact that the sector has turned highly competitive with the increasing dominance of e-commerce players. This has compelled a number of traditional retailers to strengthen their digital ecosystem and bolster shipping and delivery capabilities. While these endeavors have been driving sales, they entail high costs.

Additionally, any deleverage in SG&A rate, higher labor costs, and increased marketing and other store-related expenses remain added concerns. As a result, margins remain one of the key areas to watch out for this earnings season.
All said, let’s look for retail-wholesale stocks that are likely to trump estimates this earnings season. Per the latest Zacks Earnings Outlook, the sector is anticipated to witness top-line growth of 8.7% this reporting cycle, while the bottom line is expected to drop 0.8%. Currently, the sector is ranked among the top 19% out of the 16 Zacks sectors.

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

4 Prominent Picks

Costco Wholesale Corporation COST with a Zacks Rank #2 and an Earnings ESP of +0.22% is worth betting on. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $1.71, suggesting growth of 6.2% from the prior-year quarter. This operator of membership warehouses has outperformed the Zacks Consensus Estimate by average of 7.2% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

You may also consider Papa John's International, Inc. PZZA, which operates and franchises pizza delivery and carryout restaurants under the Papa John's trademark. The stock has a Zacks Rank #3 and an Earnings ESP of +30.44%. The Zacks Consensus Estimate for third-quarter 2019 earnings is pegged at 23 cents, suggesting growth of 15% from the year-ago figure. The company has an average positive earnings surprise of 6.8% for the trailing four quarters. The company is scheduled to report results on Nov 6.

AutoZone, Inc. AZO also deserves a mention. The stock has a Zacks Rank #3 and an Earnings ESP of +0.77%. The Zacks Consensus Estimate for earnings for the to-be-reported quarter is pegged at $13.94, indicating a year-over-year improvement of 3.5%. This specialty retailer and distributor of automotive replacement parts and accessories has an average positive earnings surprise of 8.7% for the trailing four quarters.

Another worthwhile option is CVS Health Corporation CVS, with a Zacks Rank #3 and an Earnings ESP of +0.05%. The Zacks Consensus Estimate for third-quarter 2019 earnings is pegged at $1.77, indicating an improvement of 2.3% from the year-ago period. This provider of health services and plans has outperformed the Zacks Consensus Estimate by average of 5.9% in the trailing four quarters. The company is slated to announce results on Nov 6.

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