For longtime investors, the current market is showing some of the most exaggerated and prolonged volatility in years. There is good reason to suspect that it isn’t going away anytime soon. With the COVID-19 issues thrusting almost every asset class into uncharted waters, one thing is for sure. It makes sense to cut bait and sell losers now, because there is no miracle bull market waiting around the corner, despite the big bounce off the March lows.
A series of new Goldman Sachs reports focus on some struggling companies that the firm has rated Sell. While some are not surprising, given the current stay-at-home and lock-down protocols, the mere fact that some of those orders are still in place is reason enough to move on from these stocks.
The analysts have given each stock a change in the firm’s price targets of at least 10%, and investors holding shares, or aggressive accounts looking for new short ideas, should consider taking a long look at these troubled stocks.
Estee Lauder
The drop in store traffic has been difficult for this longtime fragrance producer. Estee Lauder Companies Inc. (NYSE: EL) is one of the world’s leading manufacturers and marketers of prestige skincare, makeup, fragrance and hair care products. Its products are sold in over 130 countries. Brands include Estee Lauder, Clinique, MAC, La Mer, Bobbi Brown, Jo Malone, Origins, Bumble & Bumble, Smashbox, Tom Ford, Aveda, Too Faced and Aramis.
Consensus forecasts for the fiscal fourth quarter, ending June 30, 2020, and the estimates for 2020 and 2021 have been revised. The fourth-quarter earnings estimate has been decreased to $0.07 per share from the previous consensus forecast of $0.73 per share, as has the full-year estimate for 2020, which has been scaled down to $4.48 per share from the previous consensus of $4.56. In contrast, the full year 2021 estimate has been increased from $5.34 per share to $5.40.
Investors receive a 1.1% dividend. The Goldman Sachs analysts raised the price target from $126 to $141, but that is still well below the Wall Street consensus target of $174.60. Estee Lauder stock ended Tuesday trading at $169.94, which was down almost 3% on the day.
The Gap
This well-known retailer has been absolutely hammered by the current circumstances and has furloughed many employees. Gap Inc. (NYSE: GPS) sells private label merchandise through three main retail concepts: The Gap, Old Navy and Banana Republic, along with smaller growth vehicles Athleta and Intermix.
The company also sells its products through its company websites. Most of its international stores are Gap stores, concentrated in Western Europe (France, United Kingdom), Japan, China and Canada. The company has over 3,500 stores worldwide.
Earlier this year, the company canceled a plan to spin off Old Navy into a separate publically traded company, backing away from a plan it said it would pursue about a year ago. Gap noted at the time that splitting the companies would have been too expensive and difficult to achieve.
The retailer has suspended its dividend and drawn down a $500 million credit line. The Goldman Sachs price target fell to $6 from $7. The consensus target price was last seen at $9.18. The last trade for Gap stock on Tuesday came in at $7.45, or down just over 6% for the day.
Macy’s
This iconic retailer was in a horrible death spiral, even before the pandemic. Macy’s Inc. (NYSE: M) is the largest national department store chain by revenue. Regional department stores have undergone heavy consolidation over the years, and the present-day Macy’s organization is the result of a 2005 merger between Federated Department Stores and the May Company. The company also operates the luxury chain Bloomingdale’s. Macy’s offers a wide assortment of apparel, accessories, footwear, furniture and home goods.
Macy’s announced last month that Chief Financial Officer Paula Price would step down as of May 31 and would remain as an advisor through November. The change in management during a turbulent period adds an additional level of uncertainty to a difficult story. The company has also withdrawn its 2020 sales and earnings outlooks, and it suspended its quarterly cash dividend.
Goldman Sachs lowered the $7 price objective to $6, and the posted consensus target price is $7.77. Macy’s stock was last seen below both levels at $5.16 per share.
PVH
While not a retailer, the company’s products are sold through retail outlets, and that is proving to be difficult with the current prevailing situation. PVH Corp. (NYSE: PVH) is a global branded apparel vendor with three main business groups: Calvin Klein, Tommy Hilfiger and Heritage Brands. It distributes its branded apparel through three main channels: wholesale, retail and licensing operations.
Many across Wall Street feel there is added uncertainty about how wholesale partners will order for the second half of this year. It’s important to note that typically wholesale recovers less quickly than retail. PVH’s lean inventory positioning will shield some markdown pressures, but the road remains rocky.
The $26 Goldman Sachs price objective was boosted to $33, which compares with the $51.63 consensus price target. PVH stock closed trading at $44.27 on Tuesday.
24/7 Wall St.Texas Roadhouse
Like many restaurants, Texas Roadhouse Inc. (NASDAQ: TXRH) offers takeout service, but that is hardly enough volume to sustain the chain. The company is a full-service, casual dining restaurant chain that offers assorted seasoned and aged steaks hand cut daily on the premises and cooked to order over open gas-fired grills.
Texas Roadhouse operates restaurants under the Texas Roadhouse and Aspen Creek names. The firm also offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. It also provides supervisory and administrative services for other licensed and franchised restaurants.
Here, the Goldman Sachs price target rose to $31.50 from $28.50. The consensus target for Texas Roadhouse stock is $55.53, and the last trade hit the tape at $43.66, down almost 6% on Tuesday.
You don’t need to be an analyst to see the common thread here: retail stores and the products that are sold in them. It should be noted that all these stock have been pummeled already from 52-week highs, but that doesn’t mean they can’t go lower. You can bet that predatory hedge funds are adding some of these stocks to the short book they run.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
