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Target and Non-GAAP Earnings

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Image Source: Mike Mozart Another day of earnings — another bad day for retail. May 18 brought a disappointing first-quarter report from retail bellwether Target (TGT) that sent the prices of it and most of its big box brethren including WalMart (WMT), Best Buy (BBY), and hhgregg (HGG) lower on the session, the latter two lower due to weakness in Target’s electronics vertical during the period. We’re reiterating our $71 per share fair value estimate of Target at the time of this writing. Except perhaps home improvement retailers Lowe’s (LOW) and Home Depot (HD), which continue to post desirable comparable store sales increases (+7.3% and +6.5% in the first quarter, respectively), and arguably the auto retailers, including AutoZone (AZO) and … Read more

When Do the Dark Days Return in Home Improvement?

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By Kris Rosemann Though there are many way to slice and dice the numbers, total employment continues to grow, helping consumers’ personal income levels, and gas prices have significantly reduced everyday expenses for the average American. Home improvement retail is benefiting materially, from our perspective, and we point to a number of trends that are driving Americans to spend more on their homes, “Is the Time Right to Invest in Home Improvement (Aug 2015).” Though many subdivisions across the country remain unfinished, “What’s the Deal with US Housing? (May 2015),” we’re even started to see life out of the builders in some previously abandoned areas. Things are looking up… Home Depot (HD) and Lowe’s (LOW) embraced the late-arriving winter last … Read more

Home Improvement Remains Strong

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The story for home improvement retail giants has remained largely unchanged in recent quarters. Demand for home improvement goods has been high, as has general housing demand. This has driven traffic increases for the likes of Home Depot (HD) and Lowe’s (LOW) thus far in 2015. Home Depot reported sales growing 6.4% from the year-ago period to $21.8 billion in its fiscal third quarter of 2015, and comparable store sales increased 5.1% in the quarter. The firm’s number of customer transactions advanced by 4.4% in the period, while its average ticket price grew nearly 1%. The company’s sales per square foot grew by more than 5% in the quarter on a year-over-year basis. Home Depot’s impressive top-line trends were mostly … Read more

The Fed Freezes; Outlook as Bad as Feared or Worse?

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The cheering on CNBC has been short-lived. The sell-off we had expected irrespective of the Fed’s decision has ensued. Selling pressure in the markets may only intensify in coming weeks as uncertainty regarding Fed policy continues to take center stage. Broader market valuations remain stretched, market technicals remain weak, and sentiment is the worst it has been in some time. On September 17, the Fed announced that it has reaffirmed its view that the current 0%-0.25% target range for the federal funds rate “remains appropriate.” Though acknowledging US economic activity is expanding at a moderate pace and that both the housing sectors and labor markets have improved, it also indicated that “recent global economic and financial developments may restrain economic … Read more

Is the Time Right to Invest in Home Improvement?

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The US housing market has been hot this summer. Both purchases of previously-owned homes and residential housing starts reached their highest monthly levels in the month of July since 2007. The improved demand has been driven by a resilient labor market, historically-low mortgage rates and “pent-up” demand from the Great Recession. Purchases of previously-owned homes advanced 2% sequentially in July to an annualized rate of 5.59 million houses, handily beating consensus estimates of 5.43 million. The increased levels of demand come despite limited support from first-time buyers, however. Millennials, now coming of age, are making their first “rent-versus-buy” decisions, and many, having witnessed the housing bubble burst late last decade, aren’t viewing ownership as the wise investment decision that their … Read more

The Global Pandemic of Cybercrime, Cyber Espionage and Cyber Warfare

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“The new generation of cyber-attacks on organizations, including large and small enterprises and governments worldwide, is characterized by an unprecedented escalation in the complexity and scale of advanced malware created by criminal organizations and nation-states. These modern attacks are built on dynamic, stealthy and targeted malware that penetrates defenses in multiple stages and through multiple entry points of an IT network. These highly targeted, “single-use” cyber-attacks easily circumvent legacy security solutions that rely on pattern-matching detection technologies. Additionally, because legacy solutions reference outdated signatures of past threats, they also generate a high number of false-positive alerts.” – Fireeye Annual Report, 2014 The statistics are striking. According to a 2011 survey of ~580 US IT experts by research center Ponemon Institute, … Read more

What’s The Deal with US Housing?

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Pictured: An unfinished sub-division in rural Illinois, May 2015. Springtime is here, and housing construction is booming. The US Census Bureau’s latest tally for the seasonally-adjusted annualized rate of housing starts in April came in at 1.14 million, up an incredible 20% from the revised March estimate of 944k (sequentially) and up 9% from the April 2014 rate (year-over-year). That’s some nice expansion, to say the least. Our long-held indirect plays on the US housing recovery have been a couple of ETFs, which focus on an improving consumer credit environment and incremental loan growth from the depths of the Financial Crisis. The two ETFs can be found in the Best Ideas Newsletter portfolio, and we continue to believe that they … Read more

Dividend Increases for the Week Ending February 27

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Below we provide a list of firms that raised their dividends during the week ending February 27. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week Albemarle (ALB): now $0.29 per share quarterly dividend, was $0.275. Canadian Imperial Bank (CM): now C$1.06 per share quarterly dividend, was C$1.03. Chico’s FAS (CHS): now $0.0775 per share quarterly dividend, was $0.075. Chubb (CB): now $0.57 per share quarterly dividend, was $0.50. Cohen & Steers (CNS): now $0.25 per share quarterly dividend, was $0.22. Comcast (CMCSA): now $0.25 per share quarterly dividend, was $0.225. Cubic Corp (CUB): … Read more

Thinking Out Loud

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I remember when I was fresh out of my undergraduate studies. I applied for a sell-side equity research position. I interviewed with a head sector analyst, and I remember the first question oh so well: What is a gross margin? It was strange. I couldn’t tell if he was joking or not. Of course I knew what a gross margin was, but was this a trick? The interview couldn’t be this easy, right? Well, after responding that a firm’s gross margin is revenue less cost of goods sold divided by revenue, let’s say that he was impressed. But I wasn’t sure why. To me, understanding what makes up a gross margin or operating margin or free cash flow margin or … Read more

Walmart and Target Both Beat Expectations

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Big box retailers have showcased some resilience during the third quarter, with Home Depot (HD), Lowe’s (LOW) and Dick’s Sporting Goods (DKS) posting relatively strong results. Walmart (WMT) and Target (TGT) also followed through with respectable quarters, and we think this bodes well for most of the group heading into the holiday season. Walmart’s third-quarter results, released November 13, showed consolidated net sales advancing 2.8% with US comparable store sales increasing 0.5% for the 13-week period ended October 31, 2014. Walmart has been under competitive attack from a variety of fronts. Not only is Target its key rival, but dollar stores such as Family Dollar (FDO), Dollar General (DG) and Dollar Tree (DLTR) have been nipping at its heels through … Read more