Summer is nearing its end with Labor Day upon us, which also means the end of the summer earnings season. It's been a fairly positive earnings season, but volatility has kept turmoil in markets.
After taking a big hit last week, the major indexes are currently bouncing after President Trump reported that trade negotiations with China were progressing.
The biggest fear with China is that a prolonged trade war will lead to a global recession. Should this occur the entire market would move lower, with retail getting hit particularly hard. Economic conditions have been very favorable for the sector, with low unemployment and modestly rising wages.
This week there will be a long list of big retailers releasing their quarterly numbers, several of which are in the discount retail sector. Discount retailers have performed well during the economic recovery and are best positioned to ride out a possible recession if consumers start to cut back on spending.
Here are four big names set to report this week.
Best Buy (BBY)
Electronics retailer Best Buy (BBY) will release its second-quarter numbers before the market opens Thursday. Ahead of the quarterly report analysts forecast the company to post earnings of $0.99 per share on revenue of $9.57 billion. During the same period last year the company reported earnings of $0.82 with sales of $9.1 billion. Best Buy has done a fantastic job in recent years reinventing itself to combat the rise of e-commerce and showrooming in its stores, and earnings have been on the rise. Profits are up 28% per annum over the last five years, and the stock has appreciated 27% year to date. Best Buy has posted positive surprises on both the top and bottom line each of the last five quarters, and the street expects another earnings beat this quarter with a whisper number of $1.06. BBY has a very attractive valuation with a forward P/E of 11.1 and analysts see upside in the stock with an average price target of $76.50.
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Dollar Tree (DLTR)
Discount retailer Dollar Tree (DLTR) is scheduled to release its Q2 numbers before the market open Thursday. The consensus calls for earnings of $0.96 on revenue of $5.72 billion, versus $1.15 on $5.53 billion during the same period last year. Discount retail has been a strong spot of the overall retail sector, and with fears rising of a possible recession on the horizon it will likely continue to be a hot sector. Dollar Tree has shown Wall Street annual earnings growth of 18% over the last five years, and while analysts expect earnings growth to slow, profits are still expected to rise at an annual rate of 7.5% over the next five years. DLTR was trading at its 52-week high mid-July before shares sold off over the last month as volatility hit the overall market. The recent dip in the stock has pulled its forward P/E down to 15.9 which limits the stock downside on a small earnings miss and sets the stage for a nice post-earnings rally as long as the numbers fall in-line or better than expected. DLTR is currently trading at $95.59 with an average price target of $105.56.
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Big Lots (BIG)
Big Lots (BIG) is another discount retailer scheduled to report this week, with second-quarter earnings scheduled for release before the market open Monday. Analysts expect earnings of $0.40 per share on sales of $1.25 billion. BIG stock has traded steadily lower over the last year and is currently trading in above hits 52-week low. The valuation is low with shares trading at just 6 times earnings, but Wall Street loves to see growth and Big Lots' earnings are expected to fall 6.7% for the full year and at an annual rate of 0.6% over the next five years. There is a lot of negativity priced into the stock. With the low valuation there is a chance for a post-earnings rally, but Big Lots needs to post a big positive surprise for the quarter for traders to turn bullish on this underperformer. Analysts do see a lot of upside in the company's stock with an average price target of $33.56, versus its current price of $20.82.
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Dollar General (DG)
Dollar General (DG) will report its second-quarter numbers before the market open Thursday. DG has traded steadily higher over the last year and is currently trading just shy of its all-time high. The company has grown earnings 14.2% per annum over the last five years, and looking ahead analysts expect the company to continue growing profits at an annual rate of 9.8% over the next five years. For Q2, analysts forecast earnings of $1.58 per share, up from $1.52 during the same period last year. Dollar General topped estimates on the top and bottom line last quarter, and the street expects another earnings beat this quarter with a whisper number of $1.61. The stock is currently trading at $138.73 with an average price target of $138.90.
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