Today’s news: earnings reports from Guess? (GES) and GameStop (GME); reiterate Strong Buys on Delta Air Lines (DAL), Southwest Airlines (LUV) and WestRock (WRK).
Delta Air Lines (DAL – yield 2.3%) has reached its highest share price since the 2007 bankruptcy time period. Stocks that break out of trading ranges will often pull back one more time before commencing the new run-up in earnest. (I’m not necessarily expecting a pullback, though, due to market strength among airline stocks.) Buy DAL today, and buy more on a pullback near 58. Strong Buy.
GameStop (GME – yield 11.6%) – The company reported third-quarter results (January year end) yesterday afternoon, including:
- total global sales increased 4.8% (increased 6.3% in constant currency).
- adjusted EPS of $0.67 that far exceeded analysts’ expectations.
- double-digit year-over-year revenue growth across software, hardware, accessories and collectibles.
- pre-owned sales declined 13.4%.
The company lowered revenue and profit guidance for the fourth quarter, which caused the stock to fall in after-hours trading.
GameStop continues its strategic review for possible sale of the company, in order to maximize value for shareholders. (In English, that means management believes the share price is ridiculously low, and they expect to be able to sell the company at a higher price-per-share than what the stock market currently offers.) As previously reported, GameStop will close on the $700 million sale of its Technology Brands business in the fourth quarter.
This stock is for risk-tolerant investors who are attracted by the prospect of a possible M&A deal. Hold.
Guess?, Inc. (GES – yield 4.0%) reported third-quarter adjusted EPS of $0.13 this week when analysts expected $0.16. Third-quarter revenue of $605 million beat the consensus estimate of $598.5 million, at the high end of the $576-$608 million estimate range.
CEO Victor Herrero said that “adjusted operating margin [finished] higher than our expectations despite unexpected currency headwinds. … we still have a lot of growth opportunities in Europe and Asia; the results in the Americas retail business have continued to show improvement; and we see more opportunities to reduce costs, particularly in logistics.”
During the quarter, Guess recorded a charge of $42.4 million – or $0.52 per share – in anticipation of a fine from the European Commission related to an investigation into a violation of European competition rules. You can learn more about that in the press release or the quarterly conference call.
Guess is a global apparel manufacturer, selling its products through wholesale, retail, e-commerce and licensing agreements. The stock reacted well to strong business prospects in fiscal 2020 (January year end), including ongoing margin expansion. Analysts lowered their 2019 earnings per share (EPS) estimate and increased their 2020 EPS estimate, now reflecting 47.1% and 31.1% EPS growth, respectively. The 2020 P/E is 16.6. The company carries minimal long-term debt.
GES could appeal to value investors, aggressive growth investors, and dividend investors. The stock has been in a trading range since late March, between 19 and 25. GES recovered quickly from the first of this year’s two major stock market corrections and did not fall out of its trading range during the second correction. In the very short term, I expect the stock to rise to 23, then pull back and rest before heading to 25 thereafter. With a 4% dividend yield, GES is an excellent investment at the current price. Patient investors might get a chance to buy GES on a brief pullback below 21.75. Strong Buy.
Southwest Airlines (LUV – yield 1.2%) has just begun a new run-up. LUV is not as attractive as Delta Air Lines (DAL – yield 2.3%, Strong Buy) in terms of EPS growth, P/E or dividend yield. However, LUV is attractive in its own right, especially for risk-tolerant growth stock investors who are looking to capitalize on the current strength in airline stocks by holding LUV for several months. Long-term dividend-growth investors should also consider LUV. Buy LUV now. Strong Buy.
WestRock Company (WRK – yield 3.9%) – The price chart on WRK indicates a strong likelihood that the stock will launch upward very soon. There’s upside resistance at 54. WestRock is a global packaging and container company. The stock is appropriate for traders, and for investors seeking growth, value and/or dividends. Buy WRK now. Strong Buy.
