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SOURCE Zacks Investment Research, Inc.
CHICAGO, July 3, 2014 /PRNewswire/ -- Zacks Equity Research highlights Michael Kors (NYSE:KORS-Free Report) as the Bull of the Day and Sotheby's (NYSE:BID-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onRestoration Hardware Holdings, Inc. (NYSE:RH-Free Report), Williams-Sonoma Inc. (NYSE:WSM-Free Report) and Zumiez, Inc. (Nasdaq:ZUMZ-Free Report).
Here is a synopsis of all five stocks:
Michael Kors (NYSE:KORS-Free Report) is continuing its fabulous run as the leading luxury fashion brand displacing peers like Coach. The company delivered yet another stellar quarterly performance in late May when it reported Q4 EPS of $0.78, beating the consensus by 15% while rising 56% year over year.
Revenues of $917 million beat the consensus by 12% and grew 54% year over year. Further, the company's strong comps gain of 26% made it their 32nd straight quarter of positive same-store sales. In Europe, revenue skyrocketed 125%, with comps launching 63% higher. That's powerful growth for an $18 billion clothier.
And analysts responded across the board by raising earnings estimates and price targets. The current year EPS consensus estimate moved to $3.94 from $3.82, representing 22.5% growth. Next year was lifted to $4.70 from $4.56 indicating potential year over year growth of 19%.
Most price targets were moved slightly higher into a range of $105 to $115. Reportedly, Goldman Sachs was the outlier with a bump from $120 to $134, but I have not seen that report.
But investor reaction has been mixed as Wall Street digested information about declining gross margins. It seems there were questions about the available runway for this growth story and if investors were willing to pay more than 20X for EPS growth that might be leveling off to 20%.
I last wrote about Sotheby's (NYSE:BID-Free Report) as the Bear of the Day in mid-April. Since it remains in that cellar I thought I would revisit the piece. About the only thing that has changed since then is that the stock went through another mediocre earnings cycle (-$0.09 missed the consensus by 1-cent and analysts lowered estimates further).
Well, there was one other catalyst that might have investors interested: the long-running battle between Sotheby's and activist hedge fund Third Point reached some degree of closure after the 270-year old auction house announced in May before that earnings report that it was ready to let Dan Loeb appoint three members to its board.
My April piece gives some good background on Loeb's campaign to build a sizable position in BID shares, as well as the bear case from Jim Chanos.
Sotheby's, the eponymous luxury auction house, became a Zacks #5 Rank (Strong Sell) on March 4 when the stock was trading around $47.50. After a consistent string of earnings misses, including a whopping 175% miss one year ago (-$0.33 reported vs. expectations of -$0.12), estimates continue to get pushed lower.
In the past 60 days, full year 2014 consensus EPS projections have fallen from $2.51 to $2.37. That still represents 33% growth over last year (not a high hurdle after so many misses), but investors have not been impressed. The stock has dropped over 15% since it became a Zacks #5 Rank.
But it's possible that two other market forces are impacting the stock price besides downgrades in the company's earnings outlook: a bear theme about BID and an activist who's getting in his own way.
Profitable Mix: Good Zacks Rank, Earnings ESP
Last time, we discussed 3 Retail Stocks to Power Your Portfolio, particularly in an unfavorable economy when the market mood wavers. But is it enough to look for a favorably ranked stock while picking a market winner?
To an extent, yes. But if the stock is powered by an optimism that the company will beat the earnings estimate in the upcoming quarter, your portfolio's chance of giving you higher returns increases. Investors exercise extra caution while choosing their portfolio but returns are not guaranteed every time.
Today, we bring a Profitable Mix: Favorable Zacks Rank + Positive Earnings ESP. A favorable rank indicates positive estimate revisions by analysts who are optimistic on the future of companies. Then again, Earnings ESP (ESP: Expected Surprise Prediction), is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Here, we will discuss 3 retail stocks carrying an impressive Zacks Rank and having a positive Earnings ESP. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. These stocks we believe have the potential to enrich your portfolio in an economy which is still undergoing recovery. The third and final data for real gross domestic product (GDP) revealed a 2.9% decline in the first quarter of 2014, thus taking away some sheen from the economy, which had barely started to look strong.
Market watchers believe that the contraction stemmed from an inclement weather condition that locked consumers indoors, hampered production and construction activities, and resulted in to soft home and auto sales. Consumer spending, which accounts for over two-third of the U.S. economic activity, also grew a moderate 1% in the quarter, down from the 3.1% jump anticipated.
However, economists believe that the softness in the first quarter was only temporary. They are hopeful that a much favorable weather condition now, an improving labor market, recovery in the housing market and surging demand, will translate into strength in the U.S. economy as the year progresses. Scaling down of the bond buying campaign for the fifth time to $35 billion, rising consumer confidence (85.2 in June 2014 from 82.2 in May 2014) and 5-year low unemployment rate of 6.3%, hint at a rebounding economy.
Though we believe that the economy will eventually come out of the woods, the pace of recovery has undoubtedly been dented. In such a scenario, for investors seeking to apply our profitable mix strategy to their portfolio, we have identified 3 stocks in the Retail/Wholesale sector.
Restoration Hardware Holdings, Inc. (NYSE:RH-Free Report) is a Zacks Rank #1 (Strong Buy) stock having an earnings ESP of +1.59%. The current Zacks Consensus Estimate for second-quarter fiscal 2014 is 63 cents a share, portraying 28.8% growth from the prior-year period. This Corte Madera, CA-based home furnishing retailer registered an average positive earnings surprise of 37% over the trailing four quarters, and has a long-term earnings growth rate of 28.6%. The company is expected to report on Sep 9, 2014.
Williams-Sonoma Inc. (NYSE:WSM-Free Report) is a Zacks Rank #2 (Buy) stock with an earnings ESP of +1.89%. The current Zacks Consensus Estimate for the second quarter of fiscal 2014 is pegged at 53 cents a share, reflecting an increase of 8.3% year over year. This San Francisco, CA-based specialty retailer of home products registered an average positive earnings surprise of 5.8% over the trailing four quarters, and has a long-term earnings growth rate of 14.2%. The company is expected to report on Aug 27, 2014.
Zumiez, Inc. (Nasdaq:ZUMZ-Free Report) is a Zacks Rank #2 (Buy) stock having an earnings ESP of +11.11%. The current Zacks Consensus Estimate for second-quarter fiscal 2014 is 18 cents a share. This Lynnwood, WA based specialty retailer of action sports related apparel and footwear registered an average positive earnings surprise of 41.4% over the trailing four quarters, and has a long-term earnings growth rate of 14.2%. The company's earnings are expected for a Sep 4, 2014 release.
Who doesn't want a portfolio of stocks that have the potential to outperform and beat earnings estimate? You can use Zacks Stock Screener to find stocks with this winning combination.
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