Dissecting Today's Rare Winners: DDS, SKS, JCP, JWN, KSS, BONT, RVI
J.C. Penney Company, Kohl's Corp, Nordstrom, Saks Inc, SKS, Dillard's, Retail Ventures, and Bon-Ton Stores are part of today's rare - and odd - bullishness.
What is it about Kohl's Corp. (KSS), Nordstrom (JWN), and J.C. Penney Company (JCP) - just to name a few - that makes them so bullish today in the face of clear bearishness? The S&P 1500 Department Store Index is up 0.33% this afternoon, which isn't a lot, but any progress today should be noted. There's something going on here, and it's well worth exploring.
The obvious answer to the question is probably the right one - holiday shopping is looking more and more promising, after investors largely shunned the mass market retailers in Q3, assuming the worst.
The change of heart is quite evident with more than a few of these stocks. Bon-Ton Stores (BONT), for instance, fell more than 60% between April and August (the worst performer in the group), but since its August 31st low BONT has actually led the group with a 110% move from those lows. Retail Ventures (RVI) is another crazy example of the mental turnaround. RVI shares sank as much as 30% after April's peak, but are now more than 40% above April's peak.... gaining 94% from the August low.
As a group, these stocks fell 28% from peak to trough in the early part of the year, but have now almost made up all of that ground. The broad market has trailed, and even worse, has started to tumble while the department store stocks have continued to climb.
At the heart of the progress is the 60% improvement in bottom lines over the last four quarters, and the 25.5% projected in\improvement in 2011. That's among the best for all major industries, even if it's still a very hot-and-cold proposition when breaking the group out into its individual pieces.
Take Kohl's for instance. It cranked out 12% earnings growth last year, and is on pace to do 17% more next year. Not only is that the most consistent within the department store industry, at a forward-looking P/E of 12.7, it's also one of the best values.
That's in sharp contrast to Saks Inc. (SKS), which pumped up its bottom line by 56% over the last four quarters, and will grow earnings again by 177% next year if all goes as planned. So why are SJS shares tapering off from their recent leadership role? Even with those massive improvements, Saks Inc. shares are still trading at 45 times next year's expected earnings.
Bottom line? It's reasonably safe to take the sheer strength of the group at face value, but not all these retailers are the same as another.
As for any specific picks, Dillard's (DDS) has been making quiet and consistent progress without getting overheated. With trailing earnings growth of 128%, underestimated EPS growth of 4% for the coming year, and a projected P/E of 14.4, Dillard's may be a good dark horse play. Nordstrom is another one of those 'happy medium' ideas nobody is talking about. The value is fine, and the stock's progress is consistent.
On the flipside, J.C. Penney Company may be one to avoid. While its bottom line should improve by 18% next year, that's sub-par for 2011's estimates, and the company has already disappointed this year. Add in the somewhat-frothy forecasted P/E of 19.1 for the coming year, and it's kind of hard to justify the value.
Group-wide, the trailing P/E is 20.9, and the forecasted P/E is 20.3.
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The obvious answer to the question is probably the right one - holiday shopping is looking more and more promising, after investors largely shunned the mass market retailers in Q3, assuming the worst.
The change of heart is quite evident with more than a few of these stocks. Bon-Ton Stores (BONT), for instance, fell more than 60% between April and August (the worst performer in the group), but since its August 31st low BONT has actually led the group with a 110% move from those lows. Retail Ventures (RVI) is another crazy example of the mental turnaround. RVI shares sank as much as 30% after April's peak, but are now more than 40% above April's peak.... gaining 94% from the August low.
As a group, these stocks fell 28% from peak to trough in the early part of the year, but have now almost made up all of that ground. The broad market has trailed, and even worse, has started to tumble while the department store stocks have continued to climb.
At the heart of the progress is the 60% improvement in bottom lines over the last four quarters, and the 25.5% projected in\improvement in 2011. That's among the best for all major industries, even if it's still a very hot-and-cold proposition when breaking the group out into its individual pieces.
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That's in sharp contrast to Saks Inc. (SKS), which pumped up its bottom line by 56% over the last four quarters, and will grow earnings again by 177% next year if all goes as planned. So why are SJS shares tapering off from their recent leadership role? Even with those massive improvements, Saks Inc. shares are still trading at 45 times next year's expected earnings.
Bottom line? It's reasonably safe to take the sheer strength of the group at face value, but not all these retailers are the same as another.
As for any specific picks, Dillard's (DDS) has been making quiet and consistent progress without getting overheated. With trailing earnings growth of 128%, underestimated EPS growth of 4% for the coming year, and a projected P/E of 14.4, Dillard's may be a good dark horse play. Nordstrom is another one of those 'happy medium' ideas nobody is talking about. The value is fine, and the stock's progress is consistent.
On the flipside, J.C. Penney Company may be one to avoid. While its bottom line should improve by 18% next year, that's sub-par for 2011's estimates, and the company has already disappointed this year. Add in the somewhat-frothy forecasted P/E of 19.1 for the coming year, and it's kind of hard to justify the value.
Group-wide, the trailing P/E is 20.9, and the forecasted P/E is 20.3.
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If you'd like to receive further updates and any changes in our opinions on DDS, SKS, JCP, JWN, KSS, BONT, and RVI, be sure to sign-up for the SCN Newsletter today! It's FREE.
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Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
