It’s a big of earnings ahead, with a lot of retailers
weighing in on the strength of the consumer. We already heard from VF Corp and
then Nordstrom, last week, which was beyond disastrous. However, this week
should present some nice opportunities.
TUESDAY (M, HD)
MACY’S
Macy’s (M) reports earnings prior the market open and this
will be an interesting one. Since hitting an all-time high last July, the stock
is down 45%, and rightfully so. Management has not executed well, forcing the
company to close stores across the nation and heavily discount excess
inventory. Additionally, Macy’s flagship store in New York relies heavily on
international shoppers, which means they needs a weaker US Dollar, which they
haven’t gotten yet, and may not have consistently for a little while. At the
same time, listening to what VF Corp said, who does significant business with
Macy’s, it’s not looking good.
Analysts are looking for $1.88/share in earnings on $8.83B
in revenues, which would be down 23% YoY. I believe Macy’s can miss those
numbers and still rally because it will all be on the guidance. Management has
to convince analysts and investors that the worst is behind it and that a
turnaround is eminent. I actually do believe that the dollar is getting weaker
and YoY comps are going to be easier to beat, which should aide Macy’s in its
guidance. But what I don’t believe is that the company is executing well. Every
time I walk into a Macy’s, it is impossible to find a sales person, when you do
find someone, they typically are not friendly, and frankly, and the stores are
usually empty. I am not a fan of Macy’s going into earnings and even if they
report a strong quarter, I still believe there are better options in retail.
One thing I will say is the daily chart actually looks positive.
There is an almost perfect inverted head-and-shoulders formation since their
last earnings report, with the head at $34 (the 52-week low) and the two
shoulders almost both exactly at $37.50. If you feel risky, you can buy Macy’s
ahead of earnings and use $37.50 as your stop loss only if you can trade in the
pre-market. If Macy’s impresses, it will likely open around $46, creating an
island reversal, one of the most bullish technical formations. The market is
pricing in a 9% move, so if you are looking for a speculative trade, there it
is.
HOME DEPOT
Home Depot (HD) also reports prior the open and this is one
of my favorite plays on retail and housing. The stock was one of the best Dow
performers in 2015, but has suffered for that in 2016, falling more than 20%
off the highs, however it has since recovered about half of those losses.
Analysts and investors expect a lot of this company so there’s a lot of risking
owning it into earnings, but I think HD will deliver. I believe housing and
home improvements are still the strength of the US economy and the best place
to go when you are looking to the home is Home Depot. Additionally, Home Depot
has a continuously improving e-commerce omni-channel business, which further
drives in-store business.
There is plenty of downside risk with Home Depot. It sports
a loft 23x valuation, was a market leader for many years and is still
considered a retail stock. If the US consumer really is struggling, Home Depot
will be in trouble. I don’t see that being the case. I think your risk is $114,
the 50% retracement and even if it gets there, you should buy it and put it
away for the long haul.
WEDNESDAY (TJX)
One of the best and most consistent retailers in the last 7
years is TJX Companies (TJX). TJX owns and operates TJ Maxx, Marshalls and Home
Goods, and has done everything right for years. At the same time, they are
major benefactors of higher-end retail running into excessive inventory and
cost cutting problems. The company’s Home Goods business has led the way over
the last couple years along with the housing recovery and there is no sign of
that ending.
Analysts expect the company to grow YoY earnings by about
1.1% with full year earnings growth of 4.4%. For the year, management expects
same-store sales growth of about 5%, much better than competitors like Kohls,
Macy’s and JCPenny. TJX has a strong US presence, so the strong US Dollar will
not hurt them as much as their international competitors. A good read through
to TJX was that the lone bright spot for Nordstrom last quarter was their Rack
stores. Outlet and low price stores continue to prosper in this economy, and
that’s TJX’s sweet spot.
TJX is one of the few stocks that is actually trading higher
this year, and although it has a lofty valuation compared to other retailers,
you should pay up for this consistent out-producer. There are a couple key
technical levels to watch. On Friday, TJX traded down to $70.38, which is the50%
retracement and 100-day moving average, but turned and rallied from there. On
the downside, you have a maximum risk of 6.8%, down to $66.71, the 23.6%
retracement and a level the stock has held three times since closing above it
last November. I expect TJX to do what they always do, and I could see the
stock rallying to new all-time highs above $77.
Retail is the name of the game this week, but there are
plenty of other earnings stories, including Cracker Barrel (buy), Salesforce
(buy), JCPenny (sell), Palo Alto Networks (buy) and Allergan (buy).
My current positions: Long
Gilead Sciences (GILD), Starbucks (SBUX), Time Warner (TWX), NXP Semiconductors
(NXPI), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The
Box (JACK), Under Armour (UA), Apple (AAPL), Southwest Airlines (LUV), Dow
Chemical (DOW), Costco (COST), Amgen (AMGN), Home Depot (HD), Allergan (AGN),
FireEye (FEYE), Humana (HUM), Skyworks Solutions (SWKS), Disney (DIS), Lockheed
Martin (LMT), TJX Companies (TJX), Altria (MO), Constellation Brands (STZ), Bristol
Meyers Squibb (BMY), and LONG March 10-Year Treasury futures.
Jeff Lewison
No comments:
Post a Comment