5 Retail Stocks Likely To Outperform This Earnings Season

While most sectors are on the last leg of the earnings season, the Retail-Wholesale sector has only seen a small handful report earnings as of yet. Investors are now focused on these upcoming reports as the sector will be in the spotlight for the next two weeks.

Per the latest Earnings Trends report about 34.2% of the S&P 500 companies in the sector have reported their results, wherein 84.6% beat earnings estimates and 76.9% surpassed revenue estimates. While earnings rose 9.4% year over year, revenues climbed 15.7%. We believe that the favorable economic indicators along with friendlier fiscal and regulatory policies from the current administration bode well for the sector.

Retail Sector Holds the Baton – Why?

The retail sector hogs all the attention with the advent of the holiday season. It is time to lift your spirits by adding potential winners to your portfolio with stocks that are likely to trump all odds and stand out with great earnings surprises. A rational investment can fetch you higher returns with the ensuing stock price appreciation.

We are entering the festive season with Thanksgiving, Black Friday, Cyber Monday and of course Christmas lined up to take you on a holiday shopping spree. Competition will certainly be tough, be it at the brick-and-mortar stores or online portals, the retailers need to be hawk-eyed.

Analysts believe that buoyant stock market, gradual wage acceleration, improving employment scenario, and a lift in the economic activity post hurricanes are enough to boost consumer sentiment. We noticed that Consumer Confidence — a key determinant of the economy’s health — reached its highest level in almost 17 years in the month of October. We expect this positive sentiment to translate into higher consumer spending that may help increase sales.

Consumer spending, which accounts for more than two-thirds of the US economic activity, surged 1% in September, recording its biggest monthly increase in almost eight years. The rise in spending was led by robust sales of autos and other durable items. All these sound favorable for retailers.

5 Likely Winners for the Season

As retailers are gearing up for the season, you can also fine tune your portfolio in the same fashion to include stocks that are likely to outpace estimates. This leads to the obvious question of how to find the potential winners? Given the numerous stocks in the sector the Zacks methodology could offer some relief. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, 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.

Zumiez Inc. (ZUMZ), which is expected to report third-quarter fiscal 2017 results on Dec 7, is a solid bet with a long-term earnings growth rate of 18%. The Zacks Consensus Estimate for the quarter is pegged at 47 cents. The company delivered an average positive earnings surprise of 27.1% in the trailing four quarters. This specialty retailer of apparel, footwear and accessories has an Earnings ESP of +2.67% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can even count on Burlington Stores, Inc. (BURL) with a Zacks Rank #2 and an Earnings ESP of +1.58%. The Zacks Consensus Estimate for the quarter is pegged at 64 cents. In the trailing three quarters, the company has outperformed the consensus mark and has a long-term earnings growth rate of 17.4%. This off-price retailer of high-quality, branded apparel at everyday low prices is anticipated to report third-quarter fiscal 2017 results on Nov 28.

Another stock that you may consider is The Home Depot (NYSE:HD), Inc. (HD) with a Zacks Rank #2 and an Earnings ESP of +0.76%. The Zacks Consensus Estimate for the quarter is pegged at $1.81. The company delivered an average positive earnings surprise of 3.8% in the trailing four quarters and has a long-term earnings growth rate of 13.5%. This home improvement retailer is scheduled to come out with third-quarter fiscal 2017 financial numbers on Nov 14.

Another lucrative option is Ross Stores (NASDAQ:ROST), Inc. (ROST), an off-price retailer of apparel and home accessories. The stock carries a Zacks Rank #2 and has an Earnings ESP of +0.27%. The Zacks Consensus Estimate for the quarter is pegged at 67 cents. The company registered an average positive earnings surprise of 6.3% in the trailing four quarters and has a long-term earnings growth rate of 10%. The company is slated to announce third-quarter fiscal 2017 results on Nov 16.

We also suggest investing in Wal-Mart Stores (NYSE:WMT), Inc. (WMT), which is slated to report third-quarter fiscal 2018 results on Nov 16. This operator of supermarkets, supercenters, hypermarkets and warehouse clubs has a Zacks Rank #3 and an Earnings ESP of +0.26%. The Zacks Consensus Estimate for the quarter is currently pegged at 97 cents. The company has a long-term earnings growth rate of 5.9% and has delivered an average positive earnings surprise of 2% in the trailing four quarters.

These five stocks are not the only ones to bet on. With the help of the Zacks Stock Screener and some permutation and combination, you can find out other retail stocks that have the potential to deliver a positive earnings surprise.

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