CHICAGO, Nov. 12, 2013 /PRNewswire/ -- Zacks Equity Research highlights Tower International (NYSE: TOWR-Free Report) as the Bull of the Day and Polypore International (NYSE: PPO-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis ontheFive Below, Inc. (Nasdaq: FIVE-Free Report), Best Buy Co., Inc. (NYSE: BBY-Free Report) and The Kroger Co. (NYSE: KR-Free Report).
Here is a synopsis of all five stocks:
Tower International (NYSE: TOWR-Free Report) delivered another big "beat and raise" on October 30. While revenues were a little light, the company still managed to grow its profit margins. And thanks to a debt refinancing in the quarter, lower interest expense should provide a nice tailwind in 2014.
Analysts unanimously raised their estimates for both 2013 and 2014 after the Q3 beat, sending the stock to a Zacks Rank #1 (Strong Buy).
Tower International is a global automotive supplier that provides a broad range of metal structures from stampings to complex body and frame assemblies for virtually every major automotive vehicle manufacturer.
Since Tower was last written as the 'Bull of the Day' on April 18, 2013, the stock has risen more than 50%.
Tower reported its third quarter results on October 30. Adjusted earnings per share jumped to 48 cents, crushing the Zacks Consensus Estimate by 71%. It was Tower's 8th straight positive earnings surprise.
Revenue was a little soft, rising just 1% to $495.2 million, which was below the consensus of $511.0 million. But Tower still saw strong margin expansion in the quarter.
The gross profit margin improved 50 basis points, for instance, to 11.3%. And selling, general and administrative expense declined 40 basis points as a percentage of sales to 5.9%. Meanwhile, the adjusted EBITDA margin improved 70 basis points year-over-year to 9.8%.
Analysts revised their estimates significantly lower for both 2013 and 2014 after the Q3 miss, sending the stock to a Zacks Rank #5 (Strong Sell).
Although shares have recently sold off, the stock still does not look cheap at more than 30x forward earnings. Investors should consider waiting for earnings momentum to turn positive before establishing a position.
Polypore International is a high technology filtration company that develops, manufactures and markets specialized polymer-based microporous membranes used in separation and filtration processes. Its products are used in two primary segments: energy storage (69% of total sales) and separations media (31%).
Since Polypore was last selected as the 'Bear of the Day' on March 8, 2013, the stock has fallen more than -10%, compared with a +14% return for the S&P 500 over that stretch.
Polypore delivered disappointing third quarter results on November 4. Adjusted EPS came in at 11 cents, well below the Zacks Consensus Estimate of 27 cents. It was the company's 6th consecutive earnings miss.
Net sales declined 6% to $152.0 million, well short of the consensus of $167.0 million. Excluding foreign currency translation, sales were down 7%.
3 Retail Winners for This Holiday Season
The final quarter is around the corner and retailers are pinning their hopes on the upcoming holiday season, which is generally a 'Make or Break' for retailers as it accounts for nearly 20 – 40% of the annual sales. So the question arises: Will this holiday season meet retailers' expectations?
The predictions, however, do not seem overwhelming. The National Retail Federation – the largest retail trade association – anticipates November and December sales to grow 3.9% to nearly $602.1 billion, an improvement from the 3.5% rise in the comparable prior-year period. However, 2011 and 2010 recorded sales growth of over 5%.
In another survey by BDO USA, chief marketing officers at top U.S. retailers have predicted a 2.5% holiday comparable store sales growth this year versus 3.7% projected last year.
These projections reflect the effects of a tepid domestic economic backdrop, political mêlée following the 16-day government shutdown, and soft job opportunities, which have kept investors on tenterhooks.
What further makes this holiday season challenging for retailers is the time frame – as 2013 presents only 25 days between Black Friday and Christmas as against 31 days last year. Moreover, retailers, which witness more traffic during weekends, because there are only 4 full weekends in December this time around versus 5 in 2012.
Also, retailers are facing higher promotional expenditures as they are taking several initiatives to drive cautious, budget-constrained consumers to the shops as the season may be a tough one.
A gradually recovering housing market and tax changes have also been identified as potential threats.
Consumer confidence dropped to six-month low of 71.2 in October from 80.2 in September on account of the government shutdown and the concerns over hitting the debt-ceiling. This could be detrimental to the economy's health, as consumer spending constitutes over two-third of the U.S. economic activity.
The overall scenario does not seem too encouraging as of now with the Federal Reserve continuing with its $85 billion monthly stimulus program to keep interest rates low and boost economic growth. The two-day Federal Open Market Committee (FOMC) meeting get underway on Tuesday and market experts are keeping their fingers crossed in the hope that the Fed would make no changes with respect to quantitative easing, until April 2014.
Despite a discouraging overview, the retail sector still remains a lucrative investment opportunity for investors. Therefore, it might be a good idea to bet on select retail stocks that are poised to beat earnings estimates in the fourth quarter. An earnings beat will reiterate investors' confidence in these stocks, leading to rapid price appreciation.
How to Choose a Stock?
Picking the best stocks from the Retail/Wholesale space for one's portfolio is not a fairly simple task. However, an easy way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – 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.
For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:
Best Buy Co., Inc. (NYSE: BBY-Free Report) is a Zacks Rank #1 stock with an earnings ESP of +18.18%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 11 cents. Over the past 30 days, estimates (on average) have inched up by a penny. This Richfield, Minn. - based retailer of consumer electronics had registered an average positive earnings surprise of 31.37% over the trailing four quarters.
- Best Buy is slated to report results on Nov 19, 2013.
Five Below, Inc. (Nasdaq: FIVE-Free Report) is a Zacks Rank #2 stock with an earnings ESP of +25.00%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 4 cents. Over the past 30 days, estimates (on average) have remained unchanged.
- Five Below is slated to report results on Nov 25, 2013.
The Kroger Co. (NYSE: KR-Free Report) is a Zacks Rank #3 stock with an earnings ESP of +1.89%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 53 cents. Over the past 30 days, estimates (on average) have remained unchanged. This Cincinnati, Ohio based retailer had registered an average positive earnings surprise of 9.73% over the trailing four quarters.
-Kroger is slated to report results on Dec 5, 2013.
We believe that the above stocks with strong fundamentals and growth prospects are good investment options at the moment. As the U.S. stocks look for a survival strategy, a sneak peek into the retail space for some possible outperformers backed by a favorable Zacks Rank and a positive Zacks Earnings ESP could be handy for investors.
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