While I generally suggest traders approach earnings reports with extreme caution, these catalytic events can be great profit generators.
Over the years, I have found that stocks in the midst of a turnaround back to profitability from a period of losses can make for the best trades. Today’s candidate, Burlington Stores (NYSE:BURL), is turning that profitable corner.
If timed properly, such turnaround stories can offer tremendous opportunity as confidence returns and analysts increase their earnings projections and price targets, sending investors pouring in.
Consumer cyclical and defensive stocks overall have been enjoying strength in 2014 as Americans open up their wallets for the best deals. Given the current trajectory of economic data, it seems that consumer health continues to improve, albeit slowly.
Further, peers such as Ross Stores (NASDAQ: ROST) and TJX Companies (NYSE: TJX) both recently delivered strong earnings and sales and optimistic guidance, moving their shares higher.
If you’re not familiar with Burlington Stores, the company operates more than 500 stores under the Burlington Coat Factory, Cohoes Fashions, Super Baby Depot, MJM Designer Shoes and Burlington Shoes nameplates, all with a discounted name-brand theme.
Friday’s poor jobs number and subsequent pullback gives us an advantageous entry. Prior to that, BURL had been making new highs as the company approached its earnings release, scheduled for the morning of Tuesday, Sept. 9. The rally was fueled by analyst upgrades, with additional support coming from the strong results of its peers and upbeat consumer confidence.
BURL has been steadily increasing annual sales by roughly 6% over the past three years. This growth continued in the most recently reported quarter, as net sales rose 5.9% and comparable-store sales increased 2.7% year over year.
Most important, though, is how Burlington is expanding margins (up 80 basis points in fiscal Q1), cutting costs and improving its bottom-line performance back to quarterly profitability.
Analysts expect Burlington to lose $0.08 this quarter and then return to profitability next quarter with an $0.11 per-share profit. Based on my models, I don’t think this quarter’s results are going to blow away the Street, but I do believe guidance will be… READ MORE
