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Market Realist Consumer Sector Weekly: July 10–14, 2017

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Market Realist Consumer Sector Weekly: July 10–14, 2017 PART 1 OF 1

Key Consumer Sector Insights for the Week of July 10–14, 2017

Market and consumer sector’s performance last week

With the second quarter earnings season drawing closer, the S&P 500 Index (SPY) (SPX-INDEX) finished the week ending July 14 on a positive note with a 1.4% gain. Most of the stocks in the consumer discretionary sector and the consumer staples sector moved up last week and benefited both of the sectors. Overall, the S&P 500 Consumer Discretionary Index (XLY) rose 1.1% and the S&P 500 Consumer Staples Index (XLP) rose 0.31% in the week ending July 14.

Key Consumer Sector Insights for the Week of July 10–14, 2017

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The Factset Earnings Insight report as of July 14 mentioned that the S&P 500 Index’s earnings growth rate would be ~6.8% for 2Q17.

Except for the financial sector ETF (XLF), most of the ETFs moved up last week. XLY and XLP rose 1.1% and 0.39%, respectively. The SPDR S&P Retail ETF (XRT) rose 0.40% for the week ending July 14.

Key Consumer Sector Insights for the Week of July 10–14, 2017

As of July 14, the S&P 500 Consumer Discretionary Index (10.8%) has outperformed the S&P 500 Index (9.8%) and the S&P 500 Consumer Staples Index (6.1%) on a year-to-date basis.

Key updates on July 10–14, 2017

On July 12, Walgreens Boots Alliance (WBA) announced a 6.7% increase in its quarterly dividend. The increased dividend of $0.40 per share will be paid on September 12, 2017, to stockholders of record on August 18, 2017. The increased dividend marks the 42nd consecutive year that the company raised its dividend. Now, the annual dividend rate stands at $1.60 per share.

On July 11, Coach (COH) announced the completion of the acquisition of Kate Spade & Company (KATE) for $18.50 per share. It’s an all-cash transaction deal of $2.4 billion.

At a special meeting held by Panera Bread (PNRA) stockholders on July 11, the company’s stockholders approved the merger agreement involving the proposed transaction between Panera and JAB Holdings. The deal is expected to close this month.

On July 12, Shake Shack (SHAK) announced that it plans to open the first Hong Kong Shack in 2018. The company partnered with Hong Kong incorporated Maxim’s Caterers Limited. They plan to open 14 restaurants in Hong Kong and Macau by 2027.

In an attempt to look at new merchandise categories and set apart its business, JCPenney (JCP) will be opening toy shops in all of its brick-and-mortar locations. The toy shops will include an extensive collection of toys for kids of all ages. The collection will include dolls, racing cars, action figures, board games, arts and crafts, plush toys, and learning sets from brands such as Fisher Price, Hasbro, Mattel, and Playmobil. The company expects the toy shops to drive traffic and sales as the company focuses on increasing revenue per customer.

Top gainers last week

On July 12, Molson Coors Brewing Company (TAP) announced its partnership with Hornell Brewing Co. to market and distribute a new Flavored Malt Beverage (FMB) brand—Arnold Palmer Spiked Half & Half. Hornell Brewing Co. is an affiliate of Arizona Beverages. Molson Coors Brewing will market and distribute the product in the US through its US division—MillerCoors. The product will be introduced in 2H17 and launched nationally in 2018. The company expects the partnership to be a strategic addition to its portfolio. On July 13, the company also declared a regular quarterly dividend of $0.41 per share to be paid on September 15, 2017, to shareholders of record on August 31, 2017. The stock rose 2% for the week ending July 14.

Key Consumer Sector Insights for the Week of July 10–14, 2017

On July 13, Target (TGT) updated the guidance for comparable sales and EPS (earnings per share) for fiscal 2Q17. Target will be reporting its fiscal 2Q17 results on August 16. The company expects modest growth in its fiscal 2Q17 comparable sales due to improved traffic and sales through the first two months of 2Q17. Target’s comparable sales have been dismal over the past few quarters. The company’s optimistic news about its top line led to an ~5% rise in its stock price on the day of the announcement. Target also expects its adjusted EPS to be around the high end of the previous guidance range of $0.95–$1.15 per share. The stock rose 4.2% for the week ending July 14.

Last week, RBC raised the target price for BorgWarner stock (BWA) to $44 from $42. The stock rose 5% for the week ending July 14 and 17.2% year-to-date.

Top losers last week

On July 10, 2017, Best Buy (BBY) stock fell ~7% after a report by Recode stated that Amazon (AMZN) plans to launch its own Geek Squad service. Amazon’s new service “Smart Home Consultation” will offer in-home tech consultations and installations in select cities. It will be direct competition for Best Buy’s Geek Squad, which is one of the company’s key strengths. The stock fell 4.5% for the week ending July 14.

Key Consumer Sector Insights for the Week of July 10–14, 2017

Last week, UBS downgraded Kimberly-Clark (KMB) stock to “sell” and cut the target price to $120 from $134. The stock fell ~2% for the week ending July 14.

What to expect on July 17–21, 2017

Before the market opens on July 20, 2017, Philip Morris International (PM) will announce its fiscal 2Q17 results. Analysts estimate that the company could post revenues of $7.1 billion in fiscal 2Q17—growth of 6.4% YoY (year-over-year). The company’s EPS is also expected to rise ~7% to $1.23 in fiscal 2Q17 from its fiscal 2Q16 EPS of $1.15.

Colgate-Palmolive (CL) plans to announce its results for fiscal 2Q17 on July 21, 2017. Analysts expect EPS growth of ~3% to $0.72—compared to EPS of $0.70 in 2Q16. Analysts expect that the firm could post revenues of $3.9 billion in fiscal 2Q17—a 1.4% increase on a YoY basis.

Genuine Parts (GPC) will report its fiscal 2Q17 results on July 20, 2017. The company is expected to post EPS of $1.31 in fiscal 2Q17—an increase of 2.3% compared to EPS of $1.28 in fiscal 2Q16. The company is projected to report revenues of $4.04 billion in fiscal 2Q17—an increase of ~4% compared to fiscal 2Q16.

Harley-Davidson (HOG) will announce its fiscal 2Q17 results on July 18, 2017. Analysts estimate that the company could post revenues of $1.6 billion in fiscal 2Q17—a fall of 4.5% YoY. The company’s EPS is expected to fall ~11% to $1.38 in fiscal 2Q17 from EPS of $1.55 in fiscal 2Q16.

Omnicom Group (OMC) plans to announce its results for fiscal 2Q17 on July 20, 2017. Analysts expect EPS growth of 1.5% to $1.38—compared to EPS $1.36 in 2Q16. Analysts expect that the firm could post revenue of $3.7 billion in fiscal 2Q17—an ~4% decline in its YoY revenue.

Post-earnings coverage for July 10–14, 2017

PepsiCo (PEP) posted its fiscal 2Q17 results on July 11. The company surpassed analysts’ earnings and revenue estimates. PepsiCo’s revenue for the quarter rose 2.0% YoY to $15.7 billion in fiscal 2Q17—slightly higher than analysts’ estimate of $15.6 billion. EPS of $1.44 was ~7% higher than the same quarter last year and surpassed consensus analysts’ estimate of $1.40.

Analysts’ ratings on July 10–14, 2017

After PepsiCo released its fiscal 2Q17 results on July 11, Susquehanna cut the target price for the stock to $135 from $137 with a “positive” rating. Jefferies raised the target price to $133 from $130 with a “buy” rating. Credit Suisse increased the target price to $126 from $124. The average target price for the stock is $124.38, which is 8.0% higher than the closing price as of July 14, 2017. Out of the analysts surveyed, 65% rated the stock as a “buy,” 35% rated it as a “hold,” and no analysts rated it as a “sell.”

On July 10, Susquehanna cut the target price for Kraft Heinz (KHC) stock to $91 from $99, which represents potential upside of 6% as of July 14. The average target price for the stock is $97.35, which is 14.0% higher than the closing price as of July 14, 2017. Out of the analysts surveyed, 74% rated the stock as a “buy,” 26% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 10, Wedbush reduced the target price for Harley-Davidson stock to $50 from $53. Bernstein downgraded the stock to “market perform” from “outperform.” Stifel cut the target price to $55 from $61. Around 20% of the analysts surveyed rated the stock as a “buy,” 75% rated it as a “hold,” and 5% rated it as a “sell.”

On July 12, UBS downgraded Kimberly-Clark (KMB) stock to “sell” and cut the target price to $120 from $134. The average target price for the stock is $132, which is 6.0% higher than the closing price as of July 14, 2017. Around 7% of the analysts surveyed rated the stock as a “buy,” 87% rated it as a “hold,” and 7% rated it as a “sell.”

On July 10, Mizuho reduced the target price for Hormel Foods (HRL) to $34 from $35. The average target price for the stock is $38.4, which is 17% higher than the closing price as of July 14, 2017. Around 40% of the analysts surveyed rated the stock as a “buy,” 60% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 11, Jyske Bank cut the target price for J.M. Smucker (SJM) to $130 from $150 with a “buy” rating. The average target price for the stock is $132.21, which is ~14% higher than the closing price as of July 14, 2017. Approximately 32% of the analysts surveyed rated the stock as a “buy,” 53% rated it as a “hold,” and 16% rated it as a “sell.”

On July 12, Cowen and Company increased the target price for Shake Shack to $39 from $35. The average target price for the stock is $38.8, which is ~11% higher than the closing price as of July 14, 2017. Approximately 45% of the analysts surveyed rated the stock as a “buy,” 36% rated it as a “hold,” and 18% rated it as a “sell.”

On July 10, Deutsche Bank raised the target price for McDonald’s (MCD) to $175 from $155, which represents potential upside of ~13%. The average target price for the stock is $159.4, which is ~3% higher than the closing price as of July 14, 2017. Approximately 67% of the analysts surveyed rated the stock as a “buy,” 33% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 10, Deutsche Bank raised the target price for Yum! Brands (YUM) to $75 from $71. The average target price for the stock is $74.83, which is ~2% higher than the closing price as of July 14, 2017. Around 46% of the analysts surveyed rated the stock as a “buy,” 54% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 10, Deutsche Bank raised the target price for Chipotle Mexican Grill (CMG) to $350 from $300. The average target price for the stock is $449.07, which is 13.4% higher than the closing price as of July 14, 2017. Around 26% of the analysts surveyed rated the stock as a “buy,” 59% rated it as a “hold,” and 15% rated it as a “sell.”

On July 11, RBC raised the target price for Delphi Automotive (DLPH) stock to $105 from $95. The average target price for the stock is $98.35, which is 7.5% higher than the closing price as of July 14, 2017. Around 80% of the analysts surveyed rated the stock as a “buy,” 16% rated it as a “hold,” and 4% rated it as a “sell.”

On July 10, Bank of America Merrill Lynch downgraded Autozone (AZO) stock to “neutral” from “buy.” Around 41% of the analysts surveyed rated the stock as a “buy,” 59% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 10, Mizuho increased the target price for D.R. Horton (DHI) stock to $38 from $32. The average target price for the stock is $37.34, which is 1.7% higher than the closing price as of July 14, 2017. Approximately 62% of the analysts surveyed rated the stock as a “buy,” 38% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 13, SunTrust Robinson Humphrey increased the target price for Wyndham Worldwide (WYN) stock to $110 from $102. Approximately 55% of the analysts surveyed rated the stock as a “buy,” 36% rated it as a “hold,” and 9% rated it as a “sell.”

On July 11, Barclays downgraded Lennar (LEN) stock to “equal weight” from “overweight.” Out of the analysts surveyed, 45% rated the stock as a “buy,” 55% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 10, Pivotal Research cut the target price for Interpublic Group of Companies (IPG) to $25 from $26. Approximately 65% of the analysts surveyed rated the stock as a “buy,” 35% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 11, RBC raised the target price for BorgWarner stock (BWA) to $44 from $42. Out of the analysts surveyed, 41% rated the stock as a “buy,” 45% rated it as a “hold,” and 14% rated it as a “sell.”

On July 11, Barclays downgraded PulteGroup (PHM) stock to “equal weight” from “overweight.” On July 13, Wedbush upgraded the stock to “neutral” from “underperform” and increased the target price to $22 from $15. Out of the analysts surveyed, 38% rated the stock as a “buy,” 57% rated it as a “hold,” and 5% rated it as a “sell.”

On July 11, BMO reduced the target price for Tractor Supply (TSCO) to $57 from $71. Out of the analysts surveyed, 33% rated the stock as a “buy,” 67% rated it as a “hold,” and none of the analysts rated it as a “sell.”

On July 14, Goldman Sachs raised the target price for Walmart (WMT) stock to $84 from $78. Out of the analysts surveyed, 38% rated the stock as a “buy,” 53% rated it as a “hold,” and 9% rated it as a “sell.”

On July 14, Oppenheimer increased the target price for Lululemon Athletica (LULU) to $68 from $65. Around 43% of the analysts surveyed rated the stock as a “buy,” 49% rated it as a “hold,” and 9% rated it as a “sell.”

On July 14, BMO raised the target price for Target (TGT) to $62 from $60. Around 12% of the analysts surveyed rated the stock as a “buy,” 68% rated it as a “hold,” and 20% rated it as a “sell.”

On July 14, Credit Suisse cut the target price for Omnicom Group to $79 from $81. Out of the analysts surveyed, 12% rated the stock as a “buy,” 71% rated it as a “hold,” and 18% rated it as a “sell.”

Key dates for this week

The following chart shows key dates for the coming week.

Key Consumer Sector Insights for the Week of July 10–14, 2017

For more information, visit Market Realist’s Consumer Discretionary and Consumer Staples pages.

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