Wow, with the JPMorgan (JPM) news out last night I thought the market would be down big today. Nevertheless, the market was holding up well. The market's resiliency is astonishing to me. JPMorgan, Spain, Greece and poor numbers out of China cannot bring this market down. According to the consumer confidence statistics released today, consumer confidence is at a four year high. I believe this development bodes well for consumer related earnings next week.
I have had my eye on several consumer related earnings announcements due out next week. In the following sections, I will perform a brief review of the fundamental and technical state of each company. Additionally, we will discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary statistics and Friday's performance for the stocks.
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Groupon, Inc. (GRPN)
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GRPN reports on Monday the 14th. The stock is trading down 68% from its 52 week high and approximately 25% from its recent high. The company has some fundamental positives. Although GRPN is not yet profitable, it has a forward P/E ratio of 13.16. GRPN's big positives are its growth rates regarding EPS and sales. GRPN's quarter over quarter EPS and sales growth rates are 90% and 186% respectively. The EPS growth rate for the next five years is expected to be 29%. GRPN got shellacked when it announced in late March a $14.3 million restatement to fourth quarter 2011 revenue and an increase to fourth quarter operating expenses that reduced operating income by $30.0 million, net income by $22.6 million, and earnings per share by $0.04. GRPN said its previous accounting underestimated the amount of money it needed to set aside for customer refunds. Since that time the shares have been slid even further.
GRPN is a new company and the business model is still being questioned by many. I believe earnings will be a positive catalyst for the company. People are looking for discounts and GRPN has them. The sell off has been way over done, yet I would avoid this stock prior to earnings. With the recent restatement, you can bet management will be very conservative regarding guidance. Additionally, the stock hasn't found a bottom yet.
Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT)
I like Target and Wal-Mart in the discount variety store category. I believe people have been flocking to these stocks for the significant savings and values. Even though things have been getting better in regard to food and household goods prices, consumers are still looking for savings. Wal-Mart and Target are the leaders in this industry.
Target
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Target reports on Wednesday the 16th. The company has many fundamental positives. Target has a forward P/E ratio of 11.38, a dividend yield of 2.17% and a PEG ratio of slightly over one. The stock has found support five percent above its 200 day SMA. Current mean analysts' target price is $63.80 providing a potential 15% upside from current levels.
Canadians are eagerly awaiting the arrival of Target in the nation, according to polling from a market research firm. According to the poll, 70% of experienced shoppers in the country see the retailer pulling sales away from Wal-Mart and Sears Holdings, helped in large part by the perception there that it's more stylish than rivals. I expect this to be a major catalyst for the stock going forward. I like the stock here.
Wal-Mart
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Wal-Mart reports on Thursday the 17th. The company has many fundamental positives. Wal-Mart has a forward P/E ratio of 11.21, a dividend yield of 2.69% and a PEG ratio of 1.49. The stock took a hit recently due to a story regarding allegations of widespread bribery at Wal-Mart's Mexican subsidiary. In a statement, Wal-Mart said it had beefed up its internal controls to make sure it was complying with the Foreign Corrupt Practices Act, which prohibits U.S. companies from bribing foreign officials to secure business. In a newly created position, a top-level compliance official will be responsible for ensuring that the company abides by the law and will oversee five regional compliance directors based in international markets. I think the issue is resolved.
The stock has is still down on the news, but has not broken the upward trend line. Current mean analysts' target price is $63.82 providing a potential 7% upside from current levels. I see this as a buying opportunity.
Ross Stores Inc. (ROST)
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Ross reports on Thursday the 17th. This stock has been unstoppable for the last year. Ross is in a well-defined uptrend. The stock has pulled back to the bottom of the trend channel currently which provides an excellent entry point. The company has many fundamental positives. Ross has a forward P/E ratio of 16.43, a dividend yield of nearly 1% and a PEG ratio of 1.69. Ross's quarter over quarter EPS and sales growth rates are 24% and 12% respectively. The EPS growth rate for the next five years is expected to be 13%. The company has an 8% net profit margin. Ross is a start performer. I see no reason for things to change. I like the stock here.
The Home Depot, Inc. (HD)
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HD reports on Tuesday the 15th. This stock has been on a tear over the last year. HD is in a well-defined uptrend. The stock has pulled back to a hair above the 50 day SMA and the bottom of the current upward trend channel. The company has many fundamental positives. Ross has a forward P/E ratio of 15.48, a dividend yield of 2.29% and a PEG ratio of 1.45. HD's quarter over quarter EPS growth rate is 40%. The EPS growth rate for the next five years is expected to be 14%. This is the start of the summer season.
I have been to HD three times this month already. I believe they will report a good quarter and guidance will beat expectations. The combination of a better housing market and the upcoming summer season bodes well for this stock. This is practically a no-brainer. I like the stock here.
Conclusion
The economies of Europe and China may be facing issues, but the U.S. economy is the one bright spot. The recent drop in commodities prices coupled with less pain at the pump has U.S. consumers in good spirits. The coming summer season brings the need to purchase seasonal clothing, household goods and home care items. The only stock I suggest avoiding would be Groupon. The stock is in a free-fall and the company will be under great pressure to be extremely conservative. Don't attempt to catch this falling knife.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly basis to reduce risk and setting a 5% trailing stop loss order to minimize losses.
