American Woodmark, Fred's, Costco Wholesale, Target and Wal-Mart Stores highlighted as Zacks Bull and Bear of the Day
CHICAGO, Sept.16, 2014 /PRNewswire/ -- Zacks Equity Research highlights American Woodmark (Nasdaq:AMWD-Free Report) as the Bull of the Day and Fred's (Nasdaq:FRED-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onCostco Wholesale Corporation (Nasdaq:COST-Free Report), Target Corporation (NYSE:TGT-Free Report) and Wal-Mart Stores Inc. (NYSE:WMT-Free Report).
Here is a synopsis of all five stocks:
American Woodmark (Nasdaq:AMWD-Free Report) recently delivered strong fiscal 2015 first quarter results, prompting analysts to revise their estimates significantly higher for both this year and next. This sent the stock to a Zacks Rank #1 (Strong Buy).
While the stock price has soared since the Q1 report, the valuation picture still looks reasonable. Given the strong earnings momentum and growth projections, American Woodmark still offers investors attractive upside potential.
American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for both the new home construction and remodeling markets.
American Woodmark delivered better-than-expected results for the first quarter of its fiscal 2015 on August 19. Adjusted earnings per share came in at $0.52, beating the Zacks Consensus Estimate of $0.41. It was a 21% increase over the same quarter last year.
Net sales jumped 19% year-over-year to $211.9 million, well ahead of the consensus of $195.0 million. The company saw top-line growth in both its remodeling and new construction divisions during the quarter. Notably, new construction sales surged 21% year-over-year, which outpaced the 13% increase in housing starts.
Following strong Q1 results, analysts revised their estimates significantly higher for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).
Earnings estimates have been plummeting for Fred's (Nasdaq:FRED-Free Report) after the company delivered weak Q2 results and provided disappointing guidance for the second half of the year.
While shares are trading near their 52-week low, they still do not look like a value at 37x forward earnings. Investors should consider avoiding the stock at least until its earnings momentum improves.
Fred's operates 707 discount general merchandise stores in the southeastern United States. Approximately 90% of its products retail between $1 and $10. Additionally, a little more than half of its stores have full-service pharmacies in them, and pharmacy department sales account for a little more than 40% of total sales. The company plans to increase its pharmacy department penetration to 65-70% of its stores by the end of 2015.
Fred's is headquartered in Memphis, Tennessee.
Fred's delivered disappointing second quarter results on August 28. The company reported adjusted EPS of -$0.19, a penny below the Zacks Consensus Estimate. This compares to a gain of 9 cents in the same quarter last year.
Net sales for Q2 rose 2% to $491.2 million, which was in-line with the consensus. Same-store sales declined -0.1% for the quarter.
Meanwhile, the adjusted gross margin declined 260 basis points to 25.6%. And adjusted selling, general and administrative expenses increased by 80 basis points to 27.9% of sales. These factors led to the big drop in operating income.
Additional content:
Costco Lures Budget-Conscious Consumers Amid Stiff Competition
Costco Wholesale Corporation (Nasdaq:COST-Free Report) continues to be a dominant retail wholesaler based on the range and quality of merchandise it offers. The company's strategy of selling products at heavily discounted prices has helped it maintain growth amid soft economic conditions as budget-conscious customers continue to see it as a viable option for low-cost necessities.
We believe that Costco's differentiated product range enables it to provide an upscale shopping experience to its members, resulting in market share gains and higher sales per square foot. Moreover, it continues to maintain a healthy membership renewal rate. The company is also gradually expanding its e-commerce capabilities in the U.S., Canada, U.K. and Mexico.
Having delivered comparable-store sales growth consistently, Costco is well positioned in the warehouse club industry. It delivered comparable-store sales growth of 7% in August. The company's fourth-quarter fiscal 2014 sales results also at hint the same, with the top-line growth rate having accelerated to 9% from 7.1% in the third quarter and comparable-store sales increasing 6%. The company benefited from increasing consumer confidence, improving job prospects and back-to-school promotional strategies.
However, what remains as a drawback for Costco is that in the trailing four quarters, it has missed the Zacks' expectation by an average of 5.5%. It has delivered negative earnings surprises of 1.8%, 10.3% and 5.9% in the third, second and first quarters of fiscal 2014, respectively, and 4.1% in the fourth quarter of fiscal 2013.
Moreover, Costco faces stiff competition from Target Corporation (NYSE:TGT-Free Report) and Sam's Club, a division of Wal-Mart Stores Inc. (NYSE:WMT-Free Report), which follows a similar business model that pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition may depress margins.
Going by the pulse of the economy, we believe that budget-constrained consumers will remain watchful of their spending and look for discounts. Consequently, we could see more competitive pricing, compelling products and innovative ways to attract shoppers.
Currently, Costco carries a Zacks Rank #3 (Hold).
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