Executive Summary
-
A household brand reappears as an earnings outlier, while its stock price underperforms
-
We spotlight a micro-cap with M&A activity that recently rescheduled its earnings report
-
2021’s best-performing consumer staples member reports monthly same-store sales results later this week. Can the stock keep running?
Third quarter earnings season is in the rearview mirror with just a few stragglers yet to report. It was another banner period of profits for the S&P 500. Big tech continues to set record bottom-line numbers, while a resurgence in commodities prices buoyed results from the energy and materials sectors.
Traders are focused on macro issues and key retail sales figures heading into the consumer spending season. Still important are remarks from both large and small companies to get fresh reads on the state of the supply chain and buying trends. With backlogs abating and inflation running at 30-year highs, the trading environment continues to shift.
Earnings Outlier
Hormel Foods Corp. (NYSE:HRL) pops up again with an unusual reporting date in the coming days. The S&P 500 listed consumer staples stock and dividend aristocrat suffered severe losses as inflation fears were realized. Shares dropped from near $50 in early June to a $40 low in September. HRL bounced off bear market territory in October, but the stock has traded sideways in November.
Figure 1: HRL Stock Price History (1-Year)
A Reappearance
We featured Hormel as an outlier three months ago. Not a whole lot has changed. Wholesale food prices remain high (just look at the average cost of a holiday meal), and passing those costs on to consumers can be challenging. To wit, analysts at JPMorgan downgraded the company in October due primarily to inflation woes.
Hormel’s Holiday Hopes
Hormel bulls are banking on strong Thanksgiving sales, but next week’s earnings report will only cover the August through October period. HRL is among the biggest Thanksgiving players, care of Jennie-O turkeys and Hormel hams. Investors should pay close attention to management’s conference call comments for any early color on sales trends.
Executive Changes
C-suite seats shifted recently. Jim Sheehan, Executive Vice President and Chief Financial Officer, announced his retirement in late October. Two other executive team changes took place earlier this quarter, too. Whether these changes are related to next week’s late earnings report is unclear.
Outlier Analysis
Hormel normally reports its Q4 earnings from Nov. 20 to 26. On Sept. 3, Wall Street Horizon set an unconfirmed earnings date of Nov. 23 BMO based on its historical trend. On Nov. 8, however, HRL announced via press release that it would report much later than usual—Dec. 9.
The much-later-than-normal earnings date results in a high Z-score of 3.26. Firms that report later than the historical trend may exhibit more downside share price risk. Traders should keep this stock top of mind for potential volatility.
Earnings Revision
Techprecision Corp (OTC:TPCS) crossed our radar with an earnings revision. The $53-million micro-cap industrials stock engages in the metal fabrication and precision machine businesses. The Massachusetts-based company raised $3.2 million of capital earlier this year when it acquired California based Stadco.
Stadco is a key supplier of large flight-critical components for several high-profile commercial and military programs. Proceeds from private placement financing and new loans were used to settle Stadco’s debt and acquire company shares.
A Big Rally And Retracement
TechPrecision’s stock price was on a tear before and after the acquisition news. As the broader stock market rallied in October, TPCS shares sunk. The stock nearly doubled from July to early October but has since retraced about half of that advance. An earnings date revision could mean more volatility in the coming days.
Figure 2: TPCS Stock Price History (1-Year)
Revision Analysis
TechPrecision has a history of reporting Q2 results from Nov. 11 to 15. On Nov. 12, WSH updated its Q2 earnings date to Nov. 22. Then on Nov. 18, TPCS rescheduled its reporting date to Dec. 7 due to a late financial statement filing related to the acquisition of Stadco.
The Stadco transaction closed on Aug. 25, 2021. TechPrecision filed form NT 10-Q on Nov. 22 after the Nov. 15 SEC due date. The Dece. 7 earnings date is a whopping 26 days later than when the company would normally report Q3 results.
Interim Data: Costco Wholesale
This quarter has been a mixed bag for retail. Some stocks, such as Dillard’s, Macy’s, and Dollar Tree (NASDAQ:DLTR), have skyrocketed, while others like Nordstrom (NYSE:JWN) and Gap (NYSE:GPS) stores have collapsed. The market expects steadier price-action from consumer staples stocks and those more tied to the grocery business.
Costco Wholesale Corp (NASDAQ:COST) will report November same-store sales results on Wednesday, Dec. 1 at 4:15 PM ET. Expectations surely run high as consumers continue to spend at a rapid clip this year. While consumer sentiment readings are very poor (according to the monthly University of Michigan survey), retail sales keep setting records.
Best In Breed This Year
Costco’s share price might best exemplify the spending boom of 2021. The stock has made dozens of new all-time highs just in the last four months. With a 46% year-to-date climb, COST is the top-performing Consumer Staples name this year. Target (NYSE:TGT) and Dollar Tree are next in line.
Figure 3: Costco Stock Price History (1-Year)
Traders should also keep Thursday, Dec. 9, on their calendar for Costco’s Q1 2022 earnings date. The company reports after the close with a conference call following the results.
Conclusion
A total of 82% of S&P 500 companies have reported positive EPS surprises this quarter, according to FactSet. A total of 75% of S&P 500 firms have also beat revenue expectations. A booming economy, poised for its best GDP growth rate since at least 1984, helps propel consumer spending and strong stock prices.