Sizzle/Fizzle

Sizzle/Fizzle: Banks Stocks Sizzle, Tech Stocks Fizzle and Target Straddles The Line

So, what hit and missed this week?

We have the weekly rundown here…

Sizzle

Bank Stocks: Well, here’s a new sizzle. At this writing, banks stocks have been on the rise, seemingly forever. But in reality it’s only been several days, spurred in part by the election of Donald Trump as our next President. The promise to roll back huge swathes of CFPB and Dodd-Frank regulations has given the impression that bank earnings could be on the rise if capital is freed up to invest (profitably, the banks would hope). And testimony by Fed head Janet Yellen has given the nod to a rate increase sooner rather than later. Consumer prices are up, which means inflation may be in the offing and which also means that rate hikes are just that much more certain. All that is good news, at least for now, for the banks.

NACHA: Not bad for a first month of work — well, more like 18-months of hard work. The U.S.’s only ubiquitous faster payments initiative launched a month ago, more or less, and appears to be blossoming, with volumes 30 days in of roughly $4.8 billion — and some 4 million transactions — and across use cases as far flung as P2P to B2B to bill payments. Sizzle for ACH, the new (faster) generation.

Snapchat: Chatter around Snapchat focuses on some hefty must. Snap Inc., the parent of Snapchat, has filed for an IPO that gives the firm a sought-after valuation of between $20 billion and $25 billon with ambitions to raise. The IPO could debut as soon as March of 2017 (maybe March 15 in honor of Innovation Project 2017, perhaps?) Bloomberg has stated that the valuation could surge to as much as $40 billion. The return of the tech IPO?

Fizzle

Tech Stocks: When’s the last time bank stocks surged and tech stocks took it on the chin? How about this week when, in the wake of the surprise Trump triumph, some of the biggest names in the tech sector are dragging. Amazon lost $35 billion – guess the market doesn’t think that the President-elect will take too kindly to a certain CEO offering to send him into space. Then, Apple’s been down 1.2 percent, as well. The tech sector fizzle is being blamed on the notion that international growth may slow, especially if cross-border partnerships get the stink eye from Congress.

India: Seemed like a good idea at the time. Root out corruption by removing large denomination notes, the 500 and 1,000 rupee paper currency swaths. But now there are runs at the ATM, cash shortages at bank branches for the new notes being issued, and people are sinking money into jewelry to skirt the crackdown. Or throwing it into the river (seriously) just to get rid of it. Oh, and the new notes don’t fit in the ATMs. Pretty serious fizzle.

Lowe’s: Everyone likes to blame the weather in retail. But missed earnings at Lowe’s and lowered guidance stand in contrast to Home Depot, which did relatively better. The fact remains that the DIY segment has winners and losers. For Lowe’s, the proof is in the same store sales growth which at 2.7 percent is positive, but badly lagging arch rival Home Depot’s 5.9 percent.

Sizzle Of The Week: Target 

After a year of rough sledding, Target’s Q3 results Wednesday sent waves of good vibes through the investor community: Target’s shares were up 6.4 percent in the wake of Target’s latest earnings report. It was also Wednesday’s best performing stock, trading up at as much as 9.6 percent during the session.

“While we have much more work to do, this quarter we saw meaningful progress in our effort to improve our traffic and sales,” said Chief Executive Brian Cornell on Wednesday.

Cornell is right on both counts — Target did log some real progress during Q3 with stronger than expected back-to-school sales and improving foot traffic. But we only gave it a provisional sizzle this week, because, by the numbers, there is a still a hill to climb.

So what did those numbers look like?

By The Numbers

Target’s earnings for Q3 clocked in at $608 million, or $1.06 a share, up from $549 million, or 87 cents a share, a year earlier. Sales were down — 6.7 percent to $16.77 billion — which still beat analysts expectations of $16.3 billion.

Same store sales were also down — but only by .2 percent — which does mark two consecutive quarters of decline but also beats analysts’ worries that the decline could be more in the line of the 2 percent Target projected during its last earnings call. Last quarter marked the first quarter of comparable store sales drop since Cornell took the helm as CEO in 2014.

On the bright side, digital sales showed big growth — up 26 percent year-over-year — after two quarters of falling sales growth. The news comes just two months after Target eliminated the position of chief digital officer and just four months after appointing Target.com President Jason Goldberger to the role. Cornell told investors that stress-testing its digital system before the holiday season has been a big priority this year — after technical difficulties put a snag into Target’s holiday performance last year.

“This year we have devoted both capital and expense to improve the digital experience, increase reliability, and create additional capacity,” he said.

The biggest good news of the week is the revised sales figures for Q4 — which Target adjusted upward. They also predicted that a return to positive same store sales growth is possible for next quarter, with a strong holiday season performance.

A Provisional Sizzle

For all the good news and good feelings on Wednesday, Target does have a few big important issues to work through.

Grocery sales fell for another quarter, despite efforts to ramp up marketing in recent months. Cornell attributes the fail to “near term challenges presented by deflation and the intensely competitive environment.”

Target execs also highlighted continued softness in the sale of mobile phones. Last quarter Cornell said sales of iPhones, iPads and other gadgets fell more than 20%.

And though Target has adjusted in per-share earnings for the year to the range to $5.10 to $5.30, compared with a prior target of $4.80 to $5.20 — that guidance is still below Target’s original full-year earnings forecast of $5.20 to $5.40 a share.

So is it a full comeback for Target? Not quite.

But it is progress — and progress in a brick-and-mortar environment is good enough for a sizzle.

 

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