The Zacks Analyst Blog Highlights: Burger King Worldwide, L Brands and Sprouts Farmers Market

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Nov 04, 2014, 09:30 ET

CHICAGO, Nov. 4, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Burger King Worldwide, Inc. (NYSE:BKW-Free Report), L Brands, Inc. (NYSE:LB-Free Report) and Sprouts Farmers Market, Inc. (Nasdaq:SFM-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday's Analyst Blog:

3 Retail Stocks for Earnings Beats

Retailers are excited about this year's busiest shopping season, with a stepped-up economy setting the right mood for a buying spree. Their enthusiasm has compounded with no snags like last year's 16-day government shutdown and political impasse or a soft job scene.

The year 2014 saw a soft start as emerging economies failed to convince, stock markets lost steam and a severe winter locked consumers indoors. Then, the economy started to cheer up and the Federal Reserve hinted at recovery by winding up its stimulus program which was initiated to boost economic growth and keep interest rates low.

Economy Back on Growth Path

Gradual recovery in the housing market, a strengthening manufacturing sector, and an improving labor market abated fears of a derailed U.S. economy that intensified after the first-quarter GDP data revealed that the economy actually shrunk by a revised 2.1%. Now, the markets look more balanced and less obscure with consumer confidence moving north.

The economy swung to a growth trajectory in the second quarter, rising 4.6%, according to the "advance estimate" by the Bureau of Economic Analysis. The momentum continued in the third quarter, when the economy registered growth of 3.5%, again beating analysts' expectations.

This signals steady growth for the balance of this year and for the next. Higher business investment and export along with improved consumer spending laid the foundation for a strong GDP. Market experts believe that increased military spending and fall in imports cushioned the economy amid mounting concerns about a global slowdown, particularly in Europe. We believe that despite favorable economic numbers, the Fed will not be in any rush to increase the interest rate for fear of derailing the much-awaited recovery with a sudden rise.

Positive Sentiment Prevailing Among Consumers

Consumer confidence – a key determinant of the economy's health – also improved significantly, reaching the pinnacle this October. The data released by the University of Michigan and Thomson Reuters showed that the consumer sentiment index buoyed up to 86.9 in October from the September reading of 84.6, on improving fundamentals. Again, according to recent Conference Board data, the Consumer Confidence Index increased to 94.5 in October from 89.0 in September.

The economy added 248,000 non-farm jobs in September, and the unemployment rate touched its lowest level of 5.9% in six years, according to the Bureau of Labor Statistics. The strong jobs report confirms that the U.S. economy's fundamentals are sturdy enough to sustain the positive momentum.

We expect this positive sentiment to encourage consumer spending, which accounts for over two-thirds of the U.S. economic activity. The Commerce Department revealed that consumer spending increased 1.8% in the third quarter. Although consumer spending decelerated from 2.5% attained in the second quarter, analysts are hopeful of an uptick, given better job prospects, falling gasoline prices and the nearing holiday season.

Holiday Sales to Soar

Data compiled by the nation's largest retail trade group, National Retail Federation (NRF), suggests a 4.1% jump in holiday sales (November and December) to $616.9 billion, against 3.1% growth registered last year and better than the 10-year average sales increment of 2.9%. Online sales for this holiday season are projected to increase 8–11% to approximately $105 billion, according to Shop.org. Moreover, NRF indicated between 725,000 and 800,000 seasonal workforce addition this time compared with 768,000 hired in the prior holiday season.

However, it is not enough that buyers loosen their purse strings. Retailers too must be on their toes to make the most of the holiday splurging. Be it with early-hour store openings, promotional events, free shipping on online purchases or heavy discounts, retailers will throw all possible baits to attract buyers in flocks.

Banking on its wide spectrum, the Retail/Wholesale sector remains a lucrative investment opportunity, and identifying its future winners would be a prudent idea before taking an investment decision. So far, 44.2% of Retail/Wholesale companies have reported and have registered earnings and revenue beat ratio of 63.2%. Here, we have highlighted three Retail/Wholesale stocks that could enrich your portfolio this holiday season.

The Future Winners

Picking the best stocks from the Retail/Wholesale space for one's portfolio is a fairly simple task. One can narrow down the list of choices by looking at stocks with the combination of a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and a positive Zacks Earnings ESP.

Earnings ESP 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.

For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. A favorably ranked stock powered by optimism on earnings beat increases the chance of getting higher returns.

3 Prominent Picks

Burger King Worldwide, Inc. (NYSE:BKW-Free Report) is a Zacks Rank #2 (Buy) stock having an Earnings ESP of +3.70%. The current Zacks Consensus Estimate for third-quarter 2014 is 27 cents a share, portraying 15.7% growth from the prior-year period. This Miami, FL based operator of fast food hamburger restaurants, registered an average positive earnings surprise of 7.8% over the trailing four quarters, and has a long-term earnings growth rate of 16%. The company is slated to report on Nov 4.

L Brands, Inc. (NYSE:LB-Free Report) is a Zacks Rank #2 (Buy) stock having an earnings ESP of +6.25%. The current Zacks Consensus Estimate for third-quarter fiscal 2014 is 32 cents a share, which indicates an increase of 3.4% year over year. This Columbus, OH based specialty retailer of women's intimate and apparel, beauty and personal care products, registered an average positive earnings surprise of 4.7% over the trailing four quarters, and has a long-term earnings growth rate of 12.1%. The company's earnings are expected to be released on Nov 19.

Sprouts Farmers Market, Inc. (Nasdaq:SFM-Free Report) is a Zacks Rank #3 (Hold) stock with an Earnings ESP of +6.25%. The current Zacks Consensus Estimate for the third quarter of 2014 is pegged at 16 cents a share, reflecting an increase of 26.5% year over year. This Phoenix, AZ based retailer of natural and organic food in the United States registered an average positive earnings surprise of 18.7% over the trailing four quarters, and has a long-term earnings growth rate of 24.5%. The company is scheduled to report on Nov 6.

We believe that the above stocks boast strong fundamentals and growth prospects that can satisfy investors' appetite for market winners.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

About Zacks Equity Research

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