3 intriguing late-week earnings plays for short-term traders

Key Points

• The $0.20 per share consensus EPS estimate for The Gap could get crushed this week as it did in the first two quarters of 2023.
• Considering fiscal Q3 catalysts are likely to have remained in place during fiscal Q4, Post should deliver a seventh consecutive quarterly earnings beat.
• BJ's is expected to report third-quarter EPS of $0.95, which would be 4% below the prior year period - but an increasing number of private label products could produce a surprise.

In what’s shaping up to be another strong week for U.S. equities, traders have much to be thankful for heading into Thanksgiving week.

November 14th’s headline Consumer Price Index (CPI) reading for October came in at a cooler-than-expected 3.2%. The market cheered the result because it brought renewed hope to the idea that the Federal Reserve is done raising interest rates to fight inflation. With investors firmly in buy mode, all eleven sectors stormed out of the gates Tuesday, with the biggest gains coming from rate-sensitive groups like REITs and utilities. 

The excitement around this week’s key economic data point could very well spill into the rest of the week. November’s risk-on rally has pushed the S&P 500 index 10% off its recent low — and back within 2% of its 2023 high. As momentum builds fast, some are speculating the S&P will eclipse its January 2022 record high by year-end.   

But first things first.

To stay in risk-on mode for the next six weeks, the U.S. stock market will need to have a successful end to third quarter earnings season. Roughly halfway through the reporting period, positive surprises have been everywhere. Better than expected results at Home Depot helped shares of the home improvement retailer gap up 5% Tuesday. Plenty more earnings trade opportunities lie ahead.

Typically the week’s quietest trading day, Friday, could have plenty of fireworks. Key housing market data and several Fed speakers are scheduled. In addition, there are a bunch of consumer-facing companies slated to provide Q3 results and Q4 guidance. These reports may not only give clues to the health of the American consumer but also be bullish stock and options trading opportunities.

What could drive an earnings beat for The Gap? 

When The Gap, Inc. NYSE: GPS reports third-quarter financials after the close on Thursday, new CEO Richard Dickson will preside at the head of the table for the first time. With Wall Street forecasting an 11% year-over-year revenue decline and much lower profits, expectations will be low — but maybe too low. 

Discounting pressures related to inventory reduction have moderated in recent quarters. Combined with progress on the cost-cutting front (and a freight cost headwind turned tailwind), the $0.20 per share consensus EPS estimate could get crushed — as it did in the first two quarters of 2023. 

Another earnings beat driver could be the September 2023 launch of BR Home. The new home goods arm of the company’s Banana Republic brand offers merchandise at a wide range of price points, which could attract value and affluent shoppers alike.

Mr. Dickson will probably need a few more quarters to orchestrate a turnaround. But given the momentum in Gap shares (and last month's bullish ‘life cross’ event), a post-earnings run to a fresh 2023 high may be in store. 

When is Post Holdings’ earnings call?

Post Holdings, Inc. NYSE: POST hosts a 2023 fiscal Q4 earnings conference call on November 17th at 9:00 am EST. The packaged foods company is coming off a very strong fiscal Q3 report that benefitted from aggressive pricing actions, demand for private label cereal and the recently acquired J.M. Smucker pet food business — as well as higher food service volumes. 

With supply chain issues also improving, Post trounced the Street’s EPS projection by more than 60%, and the normally docile stock gapped up in high volume on August 4. It has since pulled back below the $90.00 level but has surged alongside the market rally in recent days. Considering the fiscal Q3 catalysts are likely to have remained in place during fiscal Q4, look for Post to post a seventh consecutive quarterly earnings beat.  

What is the Q3 EPS estimate for BJ’s Wholesale Club?

BJ’s Wholesale Club Holdings, Inc. NYSE: BJ is expected to report third-quarter EPS of $0.95, which would be 4% below the prior year period. The mid-cap version of Costco has been hampered by lower gasoline prices — and with national gas prices trending lower during the reporting period, this could again hurt results. What could produce a surprise, though, is an increasing number of private-label products.

Costco has its Kirkland Signature, and BJ’s has Wellesley Farms and Berkley Jensen. Together these brands now account for about one-fourth of merchandise sales compared to 10% a decade ago. If cash-strapped consumers favored lower-cost (and higher margin) private labels, this could drive better-than-expected earnings. It mattered little that BJ’s beat EPS last time out — but with the market in a better mood, things could be different this time around.