Retailers and the consumer discretionary sector as a whole have had a very dismal year. It is even more dismal when you compare the sector performance to some of the other top S&P 500 performers like technology and health care. The question for growth investors is one that has been asked for more than a year. Is this the quarter when they finally turn the corner?
In a new report from the retailing and specialty store analysts at Jefferies, they think that retailers are on track to beat top line estimates in the second quarter for the first time in the past four quarters. They also think that retailers are seeing better cash flows and better inventory positions, which could add up to very attractive risk/reward.
They analysts like five stocks that are rated Buy at Jefferies, and are especially keen on two stocks before they report earnings.
Abercrombie & Fitch Co. (NYSE: ANF) has slowly but surely started to rebuild what once was a very dominant brand, and the company has been utilizing its huge 19 million user following on Facebook. The Jefferies analysts cite continuing share repurchases, leaner inventory and improving fashion offering as catalysts that could drive earnings and the stock higher soon.
They also suggest investors consider the stock prior to reporting earnings on August 28. Investors are paid a 1.9% dividend. The Jefferies price target is a gigantic $60. The Thomson/First Call price target for the stock is $44.83. Shares closed Tuesday at $42.56.
ANN Inc. (NYSE: ANN) has been furthering its expansion strategy to drive top-line growth and enlarge its footprint in Canada. The upscale segment retailer opened its first LOFT store on the west coast of Canada late last year. While the company reported disappointing preliminary second-quarter sales, the rest of the year could bring positive news and surprises. The summer sell-off in the stock also provides investors a superb opportunity to buy shares.
ANN reports earnings August 22 before the open. The Jefferies price target is $45, and the consensus target is at $42.31. The stock closed Tuesday at $36.77 a share.
Chico’s FAS Inc. (NYSE: CHS) is another former high-flyer that may be poised to surprise investors when its reports on August 27 before the open. The company, through its brands Chico’s, White House | Black Market, Soma Intimates and Boston Proper is a leading women’s omni-channel specialty retailer of private branded, sophisticated, casual-to-dressy clothing, intimates, complementary accessories and other non-clothing items.
Shareholders are paid a 1.8% dividend. The Jefferies price target for the stock is $21, and the consensus target is posted at $18.22. The stock closed at $15.43.
Francesca’s Holding Corp. (NASDAQ: FRAN) is another small cap name with a potential earnings surprise coming up. The company operates a chain of retail boutiques. The company offers a selection of fashion apparel, jewelry, accessories and gifts, primarily to its female customers. This once-hot retailer has become less and less of a Wall Street favorite, and the Jefferies team thinks that consumers have warmed up to new and more colorful jewelry product line.
Francesca’s will report the week of September 2, and it is another stock investors may want to consider before earnings are released. Jefferies has a $21 price target, and the consensus estimate is $17.71. Shares closed Tuesday at $13.62.
Vera Bradley Inc. (NASDAQ: VRA) is primarily known for its iconic patterned bags, which as many investors know, are a favorite for female shoppers. The company was blasted after reporting disappointing first-quarter numbers, and the Jefferies teams is very confident in a solid top line and margins as we head toward the fall. While the analysts are not expecting a huge second quarter, they think the stocks has the potential to be one of the strongest turnaround stories long-term of the stocks they cover.
Earnings will be released September 10 before the open. Jefferies has a $30 price objective and the consensus target is $26.50. The stock closed Tuesday at $19.99 a share.
While only two of the Jefferies stocks to buy are perhaps solid pre-earnings buys, all the companies are out-of-favor and their stocks may be a solid addition for value buyers looking to add some retail to a long-term growth portfolio.