Dollar Tree (DLTR) reported third-quarter EPS of $0.81, beating analysts’ $0.78 consensus estimate, and raised its earnings guidance for the fourth quarter and full year, pushing the share price up about 10% this week. Investors had recently been ignoring the stock amid concerns over retail sales. The stock is slightly undervalued with high debt levels. After joining the Growth Portfolio in April 2016 at 81, DLTR proceeded to rise to 98, fall to 74, and is now rising back towards 98. New investors will probably be able to buy on a pullback below 86. Buy.
Big Lots (BIG – yield 1.6%) rose yesterday, in synch with Dollar Tree, as the cloud lifted from investors’ worries over retail sales. The stock is rebounding toward its August all-time high of 56. BIG is a fairly valued stock. My decision to hold the stock will depend upon earnings revisions in the coming days and weeks. I do not recommend buying BIG right now, despite the improving retail sentiment and the bullish price chart. Hold.
GameStop (GME – yield 6.1%) reported third quarter EPS of $0.49, beating analysts’ $0.47 consensus estimate. The company reiterated its targeted full-year 2016 EPS of $3.65-$3.80, with a current Wall Street consensus of $3.71. Revenue continues to decline in video games, while increasing in technology brands, collectibles and digital, which saw year-over-year revenue increases of 54.4%, 37.3% and 11.8% respectively. Future earnings growth is expected to come from the latter three categories, which produce higher gross margins than do video games. GameStop reiterated its intent to continue increasing dividends and share repurchases. The company repurchased $36 million of stock during the quarter, with $209.3 million remaining in the repurchase authorization.
GME rose 6% this morning, which means that the market is finally losing its obsession with the video game portion of GameStop’s business, and focusing on the total package, which is clearly delivering strong product growth and profitability. The 6% dividend yield is expected to grow, as is the ridiculously cheap share price. The best-case scenario for the share price this winter will be retracement of 2016 highs around 31/32. Buy.
Carnival (CCL – yield 2.7%) moves to a Hold today. The stock is fairly valued, and approaching medium-term upside resistance at 53/54. Investors who are interested in cruise company stocks should look at Royal Caribbean (RCL – yield 2.3%) in the Growth & Income Portfolio. Hold.