Nordstrom Jumps 6% On Surprise 3Q Profit; Street Sees 26% Downside

Shares of Nordstrom rose almost 6% in Wednesday’s pre-market trading session after the department store operator's 3Q results topped Wall Street's expectations. The company's earnings of $0.34 per share fell Read More... The post Nordstrom Jumps 6% On Surprise 3Q Profit; Street Sees 26% Downside appeared first on TipRanks Financial Blog.

Nordstrom Jumps 6% On Surprise 3Q Profit; Street Sees 26% Downside

Shares of Nordstrom rose almost 6% in Wednesday’s pre-market trading session after the department store operator's 3Q results topped Wall Street's expectations.

The company's earnings of $0.34 per share fell 58% year-over-year but came ahead of analysts’ estimates for a loss of $0.13 per share. Its revenues of $3.09 billion dropped 16% and lagged the Street consensus of $3.13 billion.

Meanwhile, Nordstrom (JWN) said that its sales and earnings improved in 3Q from the preceding quarter. The company reported that its EBIT (earnings before interest and taxes) turned positive and reached $106 million in 3Q, compared with a loss of $370 million in 2Q. The quarter-on-quarter performance is supported by “improved merchandise margin trends and benefits from resetting its cost structure,” the company said. Digital sales generated $1.6 billion and represented 54% of Nordstrom's sales in 3Q.

The company’s CEO Erik Nordstrom said "Our ability to significantly strengthen our financial flexibility early in the pandemic was key to delivering operating profitability of more than $100 million and cash flow of more than $150 million in the third quarter." Nordstrom’s chief brand officer Pete Nordstrom said "By working with our vendor partners, we have made quick adjustments to ensure a great holiday offering for our customers. We are encouraged by the positive momentum and expect continued progress in the fourth quarter and into 2021." (See JWN stock analysis on TipRanks)

Commenting on the results, Guggenheim analyst Robert Drbul maintained a Hold rating on the stock. He said “While we continue to favor JWN's off-price (~30% of revenue), digital, and local market strategy, we believe shares are fairly valued at ~16x our 2021E EPS, a premium to department store peers facing similar secular challenges.” 

Like Drbul, the Street is also sidelined on the stock. The Hold analyst consensus is based on 3 Holds, 2 Buys and 3 Sells. The average price target stands at $18.13 and implies downside potential of about 26.2% to current levels. Shares have declined by over 40% year-to-date.

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