Home Depot (HD) is trading down today, following its first-quarter earnings. The home-improvement retailer earned $2.08 a share on revenue of $24.95 billion. Analysts were looking for EPS of $2.05 on revenue of $25.17 billion. It also reaffirmed its full-year guidance, as it expects to earn $9.31 a share, compared with the $9.43 consensus estimate. Home Depot blamed weather for disappointing same-store sales.Analyst Moves
Ulta Beauty (ULTA) shares are higher today, thanks to an upgrade from Oppenheimer. Analyst Rupesh Parikh boosted his rating on the shares to Outperform from Perform and raised his price target to $280 from $220. He writes that even after the company's post-fourth-quarter rally, he still expects more gains and outperformance, as the "elements for a continued move higher are in place."
He sees the shares supported by a stabilizing and improving comparable sales growth, easier comparisons, and higher underlying EPS growth, driven by management initiatives." With the upgrade, Ulta and Estee Lauder (EL) are his top picks in the beauty segment.
Speaking of beauty, Morgan Stanley's Dana Mohsenian reiterated an Overweight rating on Estee Lauder, and raised her price target by $9, to $162. Mohsenian writes that the Street is underestimating the stock's long-term potential, and that it's wrong to value Estee Lauder as a consumer-products firm. Given the company's valuable beauty brands, which are benefiting from the social-media-driven consumer trend of trading up to higher-end products, she thinks it's more appropriate to value Estee Lauder as a global prestige beauty firm, which justifies a higher multiple.
Telsey Advisory Group's Dana Telsey upgraded Gap (GPS) to Outperform from Market Perform, with a $39 price target. She writes that the shares trade at a 12% discount to their 10-year historical average, and that valuation is "compelling" given consensus expectations for 23% earnings growth this year. She writes that promotional pressures are already built into guidance, and that the company has demonstrated sequentially improving operating momentum, "which we believe speaks to the underlying health of the brand portfolio." She cites the fact that in the fourth quarter, Gap saw its fifth consecutive quarter of positive comp sales and the sixth consecutive quarter of gross margin expansion, while traffic gains have lead to better merchandise margins, as the company isn't forced to discount as much.
The upgrade is part of Telsey's overall optimism about the first-quarter earnings season for specialty apparel. She expects solid traffic trends for the group and a supportive fashion cycle, while retailers will also benefit from easy year-over-year comparisons. Along with Gap, she has Outperform ratings on American Eagle Outfitters (AEO), Children's Place (PLCE), and lululemon athletica (LULU).Other News
We got retail sales this morning that were better than they appeared at first blush, the second straight month of gains this year. Morgan Stanley's Michel Dilmanian writes that although the April figure was a bit light, "upward revisions to both February and March provided a solid ramp for spending in the second quarter." Stifel's Lindsey Piegza was more reserved, writing that the excuse of blaming the weather, despite a rough winter in many parts of the country, was starting to look old. "The disappointing impact from tax reform coupled with still modest wage growth were likely the key components for less-than-stellar spending activity." Plante Moran Financial Advisors' chief investment officer Jim Baird notes that "Households seem to be much more cautious than was the case at the peak of the last cycle when the housing boom and excessive consumer borrowing ultimately helped to bring the economy down."
Sears Holdings (SHLD) is down today, a day after announcing that it has begun the formal process of exploring a potential asset sale. Susquehanna's Bill Dreher reiterated a Hold rating on the shares, writing that the move was one he "would have anticipated back in 2005 when Chairman [Eddie] Lampert first took control of Sears Holdings...What’s a little strange about today’s announcement is that we believe for over a decade, Sears Holdings has been shopping around any and all of their assets for sale."
He writes that Sears' prices for its assets were seen as "astronomical" by buyers, leading to very few bids, so Monday's announcement could be a sign that Sears has brought down its valuations to be more "anchored in reality." Moreover, he writes that the news could mean that the company is in more dire straights than many believe: "[I]t’s highly likely an indication that Sears’ cash crunch and liquidity constraints are becoming so severe that the company dearly needs to raise cash in order to stay open and finance their open to buy for Christmas and winter merchandise inventories."Looking Ahead
Walmart (WMT) will report earnings later this week, followed by Target (TGT) next week. Cowen & Co.'s Oliver Chen takes a look at the two big box retailers today, writing that pullbacks in the stocks could present an opportunity--although he's more optimistic about the former.
Chen reiterated an Outperform rating on Walmart, as he believes that the company's comparable sales will be solid, helped by healthy underlying traffic, and that e-commerce trends should also show improvement. After an underwhelming fourth-quarter report earlier this year, investor sentiment turned against the stock, which had a banner 2017. Yet that means that the company's multiple is now more reasonable, Chen notes, and investors who buy in ahead of the report can do so cheaply before the picture brightens: "Our take is that Walmart is in the penalty box. We believe the pull-back in stock price is likely overdone and we believe an in-line first-quarter print with improved digital momentum will help alleviate some investor concerns around the e-comm growth slowdown."
For Target, he has a Market Perform rating on the shares, which sold off after its analyst day in March. Yet Chen sees reason for cautious optimism, as he thinks that Target "is hitting its retail stride and will deliver an in-line quarter as management continues to execute in-store and online." He's encouraged by its new private brands, better value perception, and improved selection, but warns that traffic may have been volatile during the quarter, given weather trends and management's ongoing experimentation with pricing.
Dollar Tree (DLTR) will also report earnings next week, and Loop Capital's Anthony Chukumba reiterated a Buy rating on the stock, writing that he expects an in-line quarter from the discounter. He believes that investors will focus on the Family Dollar segment and the early results of the investments that it's making with its tax savings.
He writes that a fourth straight quarter of Family Dollar same-store sales growth, or better-than-expected profitability would make him more positive on the shares, as would significant sequential improvement in Dollar Tree segment same-store sales trends or balance sheet deleveraging. By contrast, if same-store sales trends at either segment turn worse, he would be more concerned about the stock.