Earnings reports on Dollar Tree (DLTR) and GameStop (GME); Management change at TiVo (TIVO); Quanta Services (PWR) authorized a $300MM share repurchase
Dollar Tree Reports Strong First Quarter
Dollar Tree (DLTR) reported first quarter 2017 results yesterday (January year-end). Adjusted earnings per share (EPS) were $0.98, and revenue rose 4%, each in line with analysts’ estimates. Dollar Tree brand stores exceeded revenue and margin expectations. Comparable store sales rose 2.5%, the highest increase of the past seven quarters. Family Dollar brand stores missed the mark, with comparable store sales down 1.2%. The revenue miss was attributed to tax refund delays and a late Easter, which affected other retailers as well.
Dollar Tree is North America’s leading discount retail chain. Dollar Tree acquired Family Dollar Stores in 2015, and remains focused on improving all aspects of operations at Family Dollar, including gross margins.
Dollar Tree raised its full-year fiscal 2018 EPS target from a range of $4.20-$4.56 to a range of $4.30- $4.56. The company operates approximately 15,000 stores, and aims to increase its total retail store count to 25,000 over time.
The company’s CFO will make a presentation at the RBC Capital Markets Consumer and Retail Conference on the afternoon of May 31. Investors may listen to the live webcast—or the replay—via the company’s website.
As I mentioned in this week’s update, “The stock rose in May to a range between 78 and 83, and could rise to November’s high near 90 this year. My intention is to sell the stock at 90.”
I moved DLTR to a Hold when it surpassed 82 recently, on the theory that new buyers will have less then 10% upside as the stock advances to its November 2016 high near 90. I’m not going to keep moving the stock back and forth between Buy and Hold as it occasionally dips below 82. If you’re happy with a potential 10% profit, and willing to trade out near 90, then by all means, buy DLTR. I expect a near-term upswing in the share price. Hold.
GameStop Reports Huge First Quarter Earnings Beat
GameStop (GME – yield 6.9%) reported first quarter 2017 results (January year-end) yesterday afternoon. Adjusted earnings per share (EPS) of $0.63 far exceeded the consensus estimate of $0.51. Global revenue rose 3.8% to $2.05 billion.
GameStop experienced its first sales increase in five quarters, with strength coming from Nintendo Switch sales and international markets. The quarter’s successes included a 24.6% increase in hardware sales, a 39.1% increase in collectibles sales, and a 21.5% increase in technology brands sales.
There was some weakness within the technology brands unit, which was attributed to a slowdown in the mobile upgrade cycle and changes to AT&T’s compensation programs.
The company’s full-year EPS forecast remains unchanged, and the market is pouting over that. Remember that corporate management made it clear, earlier this year, that they do not intend to adjust earnings forecasts each quarter, due to the ensuing volatility in the share price. Lo and behold, we experienced the volatility anyway! Eventually, the market will get used to sticking with the full-year earnings guidance. And if the CEO is strategic—after all, he runs a gaming company—he will lowball the estimates so as to pleasantly surprise the market at year-end, just as we were pleasantly surprised with first quarter results. (I’m a huge game enthusiast—more old school, like chess and Monopoly and jigsaw puzzles—and would absolutely plan to underpromise and overdeliver in order to maximize the effect of the eventual outcome.)
The market has been trashing the stock for many months. I want to reiterate that GameStop is a very financially healthy company, with a huge & growing dividend, low debt levels and large share repurchases. In addition, S&P reports that 95% of GameStop’s shares are held by financial institutions, which means that professional investors find tremendous value in the company and in its stock.
GME no longer has a strong enough earnings outlook for me to give it a Buy recommendation, based on the growth criteria within my investment strategy. However, dividend investors, growth & income investors and traders should all contemplate owning GME.
I expect the share price to bounce back to 25 quickly, and possibly rise much higher this year as investors continue to witness a successful transition away from an emphasis on physical game revenues. Hold.
TiVo (TIVO – yield 4.3%) announced that its President and CEO Thomas Carson plans to retire. I have no pertinent input on that topic, and there are no recent changes to the strong earnings growth outlook.
The share price has stabilized from its recent drop, after quarterly numbers were misreported by news agencies. I expect the stock to rise toward short-term resistance at about 19.5, then to have a pullback before making another upward move. Low-priced and small-cap stocks are not for the faint of heart, but they can deliver outsized capital gains. This is a good time to buy low. Strong Buy.
Quanta Services (PWR) authorized a new $300MM share repurchase yesterday. The company began aggressively buying its shares in 2015, repurchasing a whopping 28.4% of shares in 2015 and 2016.
The share price has suffered in the aftermath of its fall run-up, falling with some other “Trump Bump” industry stocks (including steel stocks). The corporate outlook remains fantastic, with aggressive earnings growth and a low P/E. Patient investors who buy now could earn a large capital gain before year-end. Strong Buy.