Nordstrom, Inc. (NYSE:JWN) enjoyed a robust holiday selling season. Like other retailers, the company suffered as competition from Amazon.com, Inc. (NASDAQ:AMZN) and other e-commerce retailers hurt JWN stock. However, with stores remaining busy during the Christmas season, the reputation of brick-and-mortar stores recovered somewhat.
JP Morgan even removed its underweight rating on JWN stock. Now with a brighter sales outlook and consistent profitability, Nordstrom stock is positioned to return to fair value.
JWN Stock Is Just Getting Started
While JWN stock has shown some level of increase lately, it has not returned to 2015 levels. And in early morning trading on Jan. 4, it is losing around 3% of yesterday’s previous value.
The JWN stock price is currently in the high-$40’s-per-share range, down from the $80-per-share high reached almost three years ago. However, following Christmas, it has bounced off the levels of two months ago when the stock traded below $40-per-share. And despite the inevitable slowdown that comes with the end of the holiday season, Nordstrom stock looks like a good purchase.
The average price-to-earnings (P/E) ratio is about 26. The current P/E for JWN stock stands at just over 16.5. Moreover, even at the height of an “Amazon is going to take over” frenzy, Nordstrom held up well, especially compared to other mall stocks.
How Does JWN Stack Up?
Fellow mall anchors Sears Holdings Corp (NASDAQ:SHLD) and J C Penney Company Inc (NYSE:JCP) have suffered big earnings losses for several years. However, JWN has remained profitable throughout the decade.
Profit levels have suffered compared to previous years, but they have remained positive. Current profit growth remains a mixed picture. Analysts expect a 2017 earnings-per-share (EPS) level of $2.02-per-share to remain the low for the foreseeable future. They also expect earnings of around $2.90-per-share for the next two years before it falls to $2.52-per-share in 2020.
Revenue growth fares better, having grown by an average of about 6.3%-per-year over the last five years. However, questions remain on whether the dismal growth numbers return after the Christmas season. In the November earnings report, revenue rose by only 2.5%, thanks only to an increase in store openings. Overall same-store sales fell by 0.9%. Responsibility for this decline falls on the company’s Nordstrom Rack stores.
At Nordstrom Rack, same-store sales fell by 5%. Additionally, the company faced higher sales and administrative expenses as it works to expand its online and omnichannel marketing initiatives. Whether these struggles re-emerge in the current quarter remains to be seen.
Final Thoughts on JWN Stock
While reports of single-digit growth are unlikely to impress Wall Street, they don’t seem like a justification for a low P/E either. Whether JWN stock rises to the average retail P/E, the company will pay investors well to wait.
The current dividend of $1.48 produces a yield of over 3% at current prices. The dividend remained at the same level for 2017. However, it has risen in most years, and given the steady revenue growth, the increases could resume in future years. Macy’s Inc (NYSE:M) and Kohl’s Corporation (NYSE:KSS) pay higher dividend yields. However, both are still experiencing revenue and EPS declines not seen with JWN.
JWN stock finds itself well-priced for buyers despite consistent profitability and a revival in in-store shopping. It’s true that near-term growth in EPS will be limited now that Christmas has ended; however, Wall Street now knows that pressure from e-commerce retailers is unlikely to force Nordstrom out of business.
Revenue and sales growth showed little movement before Christmas. However, a lower-than-average P/E ratio, as well as high dividend yield, create opportunity in the company. Perhaps other retail stocks could offer better buying opportunities. However, one could do worse than earn a 3% yield while waiting for JWN stock to return to fair value.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
