Why Target, Lowe's, and J.C. Penney All Jumped

It was another strong day for retailers as Target, Lowe's and J.C. Penney all moved higher after earnings.

Feb 26, 2014 at 10:00PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.  

Wall Street's hesitation to make a move continued for the second day in a row today as investors were awaiting comments from the new Fed Chair Janet Yellen, who will address the Senate Banking Committee about monetary policy tomorrow. As a result, the S&P 500 finished unchanged and the Dow Jones Industrial Average (DJINDICES:^DJI) moved up just 19 points or 0.1%. In a rare but of positive economic news, new home sales in January jumped to a five-and-half-year high, hitting a seasonally adjusted annual rate of 468,000, up from 427,000 in December and much better than expectations of 400,000. The Northeast showed the nation's biggest improvement with sales jumping 73.7%. Elsewhere, the Mortgage Bankers Association's Mortgage mortgage application index fell for the third week in a row, dropping 8.8%, showing that more recent housing activity may have slowed.

While the broad market remained flat, retail stocks jumped for the second straight after a bounty of strong earnings reports from the sector. Wal-Mart rode the industry wave to gain 2%, leading all Dow stocks, as shares of rival Target (NYSE:TGT) jumped 7%. It was by no means a stellar quarter for the big-box chain, but the results beat lowered expectations as the stock had sunk following revelations of a data breach that revealed millions of customers' credit card numbers. Management, however, reassured investors that customers were beginning to come back following the security failure. Comps fell 2.5% in the quarter, but were positive up until news of the data breach broke on December 19. For 2014, Target sees EPS of $3.85-$4.15, below estimates of $4.15. Still, the stock's rise indicates that that projection was better than investors had expected.

A day after Home Depot shares spiked, Lowe's (NYSE:LOW) shares jumped 5.4% as the #2 home-improvement retailer matched estimates with a per-share profit of $0.31 and a revenue growth of 5.6% to $11.66 billion. For the current year, Lowe's expects EPS of $2.60 short of the consensus at $2.65 and sees same-store sales growth of 4%. The strong gain is a bit puzzling as the results were merely as expected, but the retailer may have also gotten a bump from the robust new home sales report as well as its announcement that it would expand its share buyback program by $5 billion, or nearly 10% of the company's market cap.

Finally, J.C. Penney (NYSE:JCP) shares jumped 13% in the extended session after its earnings report was an upside surprise for once in a long time. The ailing department-store chain posted a per-share loss of $0.68, better than expectations of $0.87, while revenue slid 2.6% to $3.78 billion against the consensus at $3.86 billion. Comparable sales actually improved in the quarter, climbing 2%. The fact that shares are jumping on this report shows just how far the company's fallen. Management was optimistic about completing the turnaround in 2014, but I'd be skeptical until the company shows it can actually turn a profit again. 

Two retailers you need to own
Target, Lowe's, and J.C. Penney all had good days today, but you can't just go by the latest earnings report. You need a stock that's built to last. To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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