- U.S. jobs report, ISM PMI surveys, last batch of earnings will be in focus this week.
- Dick’s Sporting Goods is a buy with earnings, guidance beat on deck.
- Dollar Tree is a sell with downbeat profit growth, outlook expected.
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U.S. stocks rose on Friday to end a tumultuous month on a strong note with the blue-chip Dow Jones Industrial Average scoring a second consecutive all-time closing high.
For the week, the Dow rose 0.9% to extend a win streak to three weeks. The benchmark S&P 500 tacked on 0.2% on the week, while the tech-heavy Nasdaq Composite suffered a weekly loss of 0.9%.
Source: Investing.com
Friday ended a volatile month on Wall Street after an early-August selloff drove the Nasdaq into correction territory. Shares have rebounded since then, with the S&P 500 trading near record highs. For the month, the S&P 500 rose 2.3%, the Dow added 1.8% and the Nasdaq advanced 0.6%.
The holiday-shortened week ahead - which will see U.S. stock markets remain closed on Monday due to the Labor Day holiday - will be packed with several market-moving events.
Most important on the economic calendar will be Friday’s U.S. employment report for August, which is forecast to show the economy added 164,000 positions, compared to jobs growth of 114,000 in July. The unemployment rate is seen ticking down to 4.2%.
Ahead of the jobs report, the ISM manufacturing and services PMIs will also be closely watched.
Source: Investing.com
As of Sunday morning, investors see a 70% chance of the Fed cutting rates by 25 basis points at its September meeting, and a 30% chance of a jumbo 50bps cut, according to the Investing.com Fed Monitor Tool.
Meanwhile, some of the key earnings reports to watch include updates from Broadcom (NASDAQ:AVGO), Hewlett Packard Enterprise (NYSE:HPE), Dick’s Sporting Goods (NYSE:DKS), Dollar Tree (NASDAQ:DLTR), and Nio (NYSE:NIO).
Regardless of which direction the market goes, below I highlight one stock likely to be in demand and another which could see fresh downside. Remember though, my timeframe is just for the week ahead, Monday, September - Friday, September 6.
Stock to Buy: Dick’s Sporting Goods
I expect a strong performance from Dick’s Sporting Goods this week, with shares likely to break out to a new record high, as the athletic-gear retailer’s second quarter earnings report will surprise to the upside thanks to favorable consumer demand trends.
Dick’s is scheduled to release its Q2 update ahead of the opening bell on Wednesday at 7:00AM ET, and results are likely to have benefitted once again from solid demand for sneakers, apparel and sports equipment from its loyal customer base and a disciplined inventory approach.
According to the options market, traders are pricing in a swing of about 7.5% in either direction for DKS stock following the print. Earnings have been catalysts for outsized swings in shares this year, as per data from InvestingPro, with Dick’s stock gapping up 15% when the company last reported quarterly numbers in late May.
Source: InvestingPro
Consensus estimates call for the Coraopolis, Pennsylvania-based sporting goods store chain - which operates over 800 retail locations across the U.S - to deliver earnings per share of $3.85, improving 36.5% from EPS of $2.82 in the year-ago period. If that is confirmed it would be the sporting goods retailer’s biggest earnings jump in more than two years.
In a sign of increasing optimism, analysts have made substantial upward revisions to their EPS forecasts in the weeks leading up to the earnings report. Notably, 14 out of the last 17 EPS revisions have been to the upside, reflecting growing confidence in the company’s financial performance.
Despite a difficult environment for retailers, revenue is forecast to rise 6.8% year-over-year to $3.44 billion. Comparable same-store sales - which increased by 5.3% in the previous quarter - will likely top estimates thanks to resilient consumer demand for sports and recreation clothing and equipment even as overall discretionary spending wobbles.
As such, it is my belief that Dick’s management will provide an upbeat outlook for the current quarter driven by robust sales growth across its athletic apparel and footwear product categories, as well as fitness and outdoor equipment.
DKS stock closed at $236.96 on Friday, a tad below its all-time high of $239.30 reached on August 23. At current levels, Dick’s has a market cap of around $19.3 billion, making it the nation’s largest sporting goods retail chain.
Source: Investing.com
Shares are up by a massive 61.2% year-to-date, much better than the 5.5% gain recorded by the SPDR® S&P Retail ETF (NYSE:XRT), which tracks a broad-based, equal-weighted index of U.S. retail companies in the S&P 500.
It is worth noting that InvestingPro's AI-powered models rate Dick’s Sporting Goods with a near-perfect ‘Financial Health Score’ of 4.0 out of 5.0, underlining the strength of its underlying business and strong execution across the company. Additionally, it should be mentioned that Dick’s has maintained its annual dividend payout for 14 consecutive years.
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Stock to Sell: Dollar Tree
On the flip side, Dollar Tree faces mounting challenges as it prepares to report its Q2 earnings, with the struggling discount retail chain dealing with the negative impact of several headwinds on its business.
Dollar Tree is expected to deliver weak earnings and guidance when it releases its latest financial results on Wednesday before the U.S. market opens at 6:30AM EST, due to rising operating costs and fierce competition from retail giants like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN), as well as PDD(NASDAQ:PDD)-owned Chinese e-commerce platform Temu.
The Chesapeake, Virginia-based variety store operator’s margins are under pressure, and an InvestingPro survey reveals that 22 out of 23 analysts have slashed their profit estimates in the past 90 days. This bearish sentiment reflects concerns about Dollar Tree's ability to navigate the increasingly competitive discount retail sector, especially as consumer spending shifts towards larger, more established players.
With these headwinds, Dollar Tree's Q2 report is unlikely to inspire confidence, making it a stock to avoid or sell. Adding to the bearish case, Dollar Tree’s industry peer, Dollar General (NYSE:DG), suffered an historic earnings-day decline of 30% late last week, underscoring the challenges facing discount retailers.
Market participants expect a sizable swing in DLTR shares after the report drops, with a possible implied move of 13% in either direction as per the options market. It is worth mentioning that the retailer gapped down sharply the last two times it reported earnings.
Source: InvestingPro
Dollar Tree - which operates roughly 15,000 stores across the U.S. - is expected to post a profit of $1.04 for the second quarter, rising 14.3% from EPS of $0.91 in the year-ago period. Meanwhile, revenue is seen inching up 2.2% annually to $7.48 billion.
With Dollar Tree’s margins under pressure and its competitive positioning weakening, it is my belief that the retailer will provide weaker-than-expected 2025 sales and profit guidance due to the tough macro climate.
This is compounded by Dollar Tree’s exposure to price-sensitive consumers, who are increasingly turning to larger retailers that offer better deals and a broader product selection.
DLTR stock ended Friday’s session at a fresh 52-week low of $84.49, its weakest level since May 26, 2020. At current valuations, Dollar Tree has a market cap of $18.2 billion, making it the second largest U.S. dollar store and one of the biggest discount retailers in the country.
Source: Investing.com
Shares are down a whopping 40.5% in 2024, making it one of the worst performing stocks in the S&P 500, amid worries over spotty sales growth, weakening profit margins, and declining free cash flow.
It should be noted that InvestingPro paints a negative picture of Dollar Tree’s stock, citing concerns over declining profit and sales growth prospects.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust ETF. I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.