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We are in the last leg of the third-quarter 2020 earnings season and overall results have come in better than expected. Market participants are watching the results closely as the quarter has been a mixed one both in terms of economic data and stock market performance. Meanwhile, four retail giants are likely to beat on earnings this week, which may drive their stock prices in the near future.

Retail Sector in Q3

The retail sector grew in the third quarter albeit at a slow rate. Retail sales grew 0.9%, 0.6%, and 1.9%, respectively, in July, August, and September. Core retail sales (excluding the volatile auto sales) rose 1.3%, 0.5%, and 1.6%, respectively, in the months. Notably, core retail sales constitute a major part of the consumer spending component of the U.S. GDP.

The resurgence of coronavirus in the United States significantly dented retail sales. Moreover, the inability of the U.S. Congress to reach a deal on the size and scope of a fresh fiscal stimulus was a major reason for the tepid growth rate.

However, the most important point is that retail sales grew despite the lack of a new trench of stimulus. Meanwhile, in absolute terms, retail sales have reached the pre-pandemic level.

Q3 Earnings Results in Brief

The third-quarter earnings season has started on a positive note although overall earnings are likely to remain negative. As of Nov 13, 463 S&P 500 companies have reported results. Total earnings of these companies are down 9% from the same period last year on 2% lower revenues, with 84.4% beating EPS estimates and 75.8% surpassing revenue estimates.

Meanwhile, for the quarter as a whole, total S&P 500 earnings are expected to decline by 8.6% on 1.2% lower revenues. This would mean an improvement over an earnings decline of 22% year over year on 2.9% lower revenues, as projected before the reporting cycle.  

This also implies a marked improvement over second-quarter earnings that had plunged 32.3% on 9.2% lower revenues. Notably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. More importantly, earnings expectations for the fourth quarter are gradually improving since July.

Stocks in Focus

Four retail behemoths are slated to release earnings results this week. Each of these stocks carries either a Zacks Rank #2 (Buy) or 3 (Hold) and has a positive Earnings ESP. 

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of four stocks in the last quarter.

Walmart Inc. (WMT) operates retail stores, restaurants, discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and neighborhood markets, as well as the websites, walmart.com and samsclub.com. The Zacks Rank #3 company has an Earnings ESP of +2.79% for third-quarter fiscal 2021 (ended October 2020).

Walmart has an expected earnings growth rate of 8.1% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days. It has a trailing four-quarter earnings surprise of 9.5%, on average. The company will release its earnings report on Nov 17, before the opening bell.

The Home Depot Inc. (HD Quick Quote HD - Free Report) is the world’s largest home improvement specialty retailer with over 2,200 retail stores across the globe, offering a diverse range of branded and proprietary home improvement items, building materials, lawn and garden products, and related services. The Zacks Rank #3 company has an Earnings ESP of +5.19% for the third quarter of fiscal 2020 (ended October 2020).

The Home Depot has an expected earnings growth rate of 12.3% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 7 days. It has a trailing four-quarter earnings surprise of 1.3%, on average. The company will release an earnings report on Nov 17, before the opening bell.

Lowe's Companies Inc. (LOW Quick Quote LOW - Free Report) is one of the world’s leading home improvement retailers, offering services to homeowners, renters, and commercial business customers. The Zacks Rank #3 company has an Earnings ESP of +7.78% for the third quarter of fiscal 2020 (ended October 2020).

Lowe's Companies has an expected earnings growth rate of 50.2% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 7 days. It has a trailing four-quarter earnings surprise of 17.2%, on average. The company will release its earnings report on Nov 18, before the opening bell.

Target Corp. (TGT) operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items; and apparel, accessories, home décor products, electronics, toys, seasonal offerings, and other merchandise. The Zacks Rank #2 company has an Earnings ESP of +7.75% for third-quarter fiscal 2020 (ended October 2020).

Target has an expected earnings growth rate of 13.3% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last 7 days. It has a trailing four-quarter earnings surprise of 37.6%, on average. The company will release earnings report on Nov 18, before the opening bell.