The earnings season is quickly wrapping up, but there are still plenty of big name stocks left to report their most recent quarterly numbers.
Overall it has been a positive earnings season, but corporate earnings growth is slowing, which has placed additional pressure on companies to post earnings in-line or better than analyst estimates. The overall economic landscape in the U.S. remains favorable, with low unemployment and strong consumer confidence, while trade tensions between the U.S. and China continue to weigh on Wall Street.
For months it appeared as though the world’s two largest economies were nearing a trade deal, but recent weeks have seen trade negotiations weakened and highlighted just how complex and difficult it will be for both countries to reach a deal and put the current trade war to rest.
Trade negotiations will remain the driving catalyst for the broader markets in the weeks and months ahead, but that does not diminish the importance of corporate earnings, and each major earnings report does have the potential to impact the overall market in a positive or negative manner.
Here are some the biggest names reporting their quarterly numbers this week.
The housing sector is a crucial element in the U.S. economy, and while the housing market remains strong rising interest rates have slowed the sector. Home improvement goods and supplies retailers such as Lowe’s (LOW) have been strong in recent years, and LOW stock is up sharply over the last five years. Rising interest rates and escalated trade tensions with China hit the stock in the latter part of 2018, but LOW shares rebounded strongly during the first three months of 2019 before trade negotiations began to erode. Over the last five years, the strong housing market helped drive Lowe’s profit growth of 18.5% per annum, and looking ahead analysts expect earnings to continue rising at an annual rate of 16%. Given the strong forecast growth, the stock looks reasonably priced with a forward P/E of 15.6. The stock’s low valuation stems from uncertainties over the impact of recent interest rate increases and cost implications from Chinese tariffs. Traders remain upbeat on the sector, but Lowe’s, and main competitors like Home Depot (HD) will react sharply to any sign of weakness. LOW trades at $109.81 with an average price target of $120.55.
Ross Stores (ROST)
Off-priced retailer Ross Stores (ROST) will report its first-quarter numbers after the market close on Thursday. Ahead of the quarterly report analysts forecast earnings of $1.12 per share on revenue of $3.8 billion slightly higher from the company’s earnings of $1.11 and sales of $3.6 billion during the same period last year. The retail sector in the U.S. remains favorable with low unemployment and a strong stock market fueling high consumer confidence, but it remains the discount retail sector that has fared the best. Ross Stores is known for its off-price name brand merchandise, and the company has enjoyed annual earnings growth of 15.4% over the last five years. The recent growth has created tough comparables for the company, and analysts forecast annual earnings growth of just 9.9% for the next five years. While growth is slowing, it remains strong and the stock currently trades at 19 times future earnings which is reasonable. Ross has posted positive earnings surprises for 11 straight quarters with better than expected sales 10 of the last 11 quarters with quarter of in-line revenues. The street expects another earnings beat with a whisper number of $1.15. ROST trades at $97.15 with an average price target of $97.84.
Best Buy (BBY)
Electronics retailer Best Buy (BBY) was one of the hardest hit retailers in the age of e-commerce. As Amazon.com (AMZN) and other e-commerce companies grew in importance, Best Buy struggled to battle “showrooming”, which is the practice of consumers shopping and doing research in brick and mortar stores and then purchasing the products online at a cheaper price. Best Buy was able to overcome its hurdles by revamping its stores, price matching online retailers and investing heavily in its own e-commerce business. For its recent quarter analysts expect earnings of $0.88 on sales of $9.14 billion. During the same period last year the retailer earned $0.82 and had sales of $9.1 billion. The stock has sold off with the overall market as trade tensions have escalated with the U.S. and with the recent dip the stock is now trading at just 13 times earnings. BBY trades at $69.04 and analysts have an average price target of $77.19.
Foot Locker (FL)
Athletic footwear and apparel retailer Foot Locker (FL) is a good barometer of the overall retail sector. When consumers are feeling confident about the overall economy, they are more likely to buy more expensive items such as top-end athletic footwear. Foot Locker is forecast to report earnings of $1.61 per share with $2.1 billion expected in revenue. During the same period last year the retailer earned $1.45 on sales of $2.03 billion. The company has a good earnings track record, with better than expected earnings in each of the last six quarters while revenues have come in above estimates the last four. The street expects another positive earnings surprise with a whisper number of $1.64 for the quarter. The company has grown earnings 5% per annum over the last five years and analysts expect stronger annual growth of 9.7% over the next five years. The stock has a very low valuation with a forward P/E of 9.7 suggesting good upside if results come in-line with estimates. Analysts see a lot of upside in the stock with an average price target of $67.89 versus its current price of $55.16.