The peak of earnings season has passed — and it has been good enough for a bull market now in its ninth year. Key sectors like financials and techs have moved higher, and there has been enough strength elsewhere for the Street to stay positive and for broad markets to set new all-time highs.
The focus now turns to retailers, many of whom have fiscal years ending in January, and thus report a month later than companies reporting on the standard calendar. That change in focus could be a concern for a market trading at high multiples and with record-low volatility.
Retail after all has been the least-healthy sector over the last few years, with Amazon.com, Inc. (NASDAQ:AMZN) casting a shadow and U.S. consumers seeming to move toward experiences and away from merchandise.
This week, three retail bellwethers report, and will set the tone for the industry this month. Some good news could bode well for the rest of the industry. But a rough start could push investor sentiment toward the space even further south.
Earnings Reports to Watch: JD.com (JD)
JD.com Inc(ADR) (NASDAQ:JD) has had some choppy trading since May — but it’s set up nicely for a pop after it reports Q3 results on Monday morning.
The Chinese e-commerce retailer lags better-known Alibaba Group Holding Ltd (NYSE:BABA) in market share — but it has been gaining ground for several quarters. I’ve liked BABA going back to early this year, and its recent earnings beat shows the Chinese economy remains strong.
JD.com, meanwhile, has posted three straight earnings beats — though it oddly fell after a very strong Q2 report in August. The average Street target price is above $50, representing 25%-plus upside, and another beat on Monday should see a better result for JD stock.
JD isn’t cheap, at 46x next year’s consensus EPS. But its torrid growth and a recent pullback mean that a fourth-straight beat should be rewarded by the market.
Earnings Reports to Watch: TJX Companies (TJX)
I recommended TJX Companies Inc (NYSE:TJX) to my subscribers last month, and I’m sticking with that recommendation ahead of TJX’s Q3 report before the open on Tuesday.
Shares of TJX and rival Ross Stores, Inc. (NASDAQ:ROST) have stagnated over the past few years, as investors seem to be concerned that broader retail weakness will make its way to the off-price channel. But those concerns seem overblown. TJX continues to drive growth in both same-store sales and earnings. The HomeGoods concept still has plenty of room to grow its store count as well.
TJX stock would be a beneficiary of tax reform if it comes through, given its 37% tax rate. And a reasonable valuation of just 16x January 2019 EPS estimates leaves the stock cheap.
I have an $85 target on TJX, 25% upside from current levels. If Q3 earnings remind investors that TJX Companies still has years of growth — and plenty of upside — ahead of it, some of that upside should be captured on Tuesday.
Earnings Reports to Watch: Target (TGT)
I’ve recommended Target Corporation (NYSE:TGT) to subscribers as well. Like TJX, it would be a beneficiary of tax reform. And a 13.8x multiple to January 2018 EPS estimates leaves the stock cheap compared to rival Wal-Mart Stores Inc (NYSE:WMT).
Still, some patience might be advised ahead of the company’s third quarter release on Wednesday morning. TGT’s 50-day moving average has held as support since the summer, as it has rallied 19% off the lows. But it dipped below the 50-day moving average this week, before a bounce on Thursday.
Meanwhile, expectations for Q3 are exceedingly modest. Street consensus suggests a 17% decline in earnings per share, and almost zero revenue growth. In this case, those low expectations might not be a good thing. A quarter that beats analyst estimates likely still won’t look impressive — and investors may wait for the seasonally important Q4 report to confirm that Target’s turnaround is progressing as planned. Anything close to the Street might confirm the fears about Target’s long-term growth and margin profile.
I still have a long-term target of $70 on Target stock. But with the odds of tax reform having come down, the dip below the 50-day, and a potentially dangerous Q3 report, short-term trading could be choppy. Investors might want to let the earnings release play out before taking a position.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.