Bull of the Day: Dillards (DDS)

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Dillard’s (DDS) is a Zacks Rank #1 (Strong Buy) that is a large departmental store chain featuring fashion apparel and home furnishings. Dillard’s primary product categories are women’s and children’s apparel, shoes, accessories and lingerie, men’s clothing and accessories, cosmetics, home, and children’s clothing.

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The stock has surged in 2021, up over 400% on the year. While it might seem overstretched, investors are driving the price higher after a strong earnings report.

About the Company

Dillard’s is primarily located in the Southern and Midwestern areas of the United States. As of January 2021, the company had about 249 namesake outlets and 31 clearance centers spanning in 29 states.

The company has about 40,000 employees and is headquartered in Little Rock, Arkansas. Dillard’s has a market cap of $7 Billion and has Zacks Style Scores of “A” in Growth and Momentum, as well as a “B” in Value. The stock has a Forward PE of 10 and pays a 0.25% dividend.

Q3 Earnings

Last week, Dillard’s posted a whopping 408% beat on the bottom line. Revenues also surged, as the company saw $1.48B v 1.02B last year. Same store sales were up 48% and their retail gross margin came in at 46.7% vs 36.6% last year.  

Strength in sales came from the junior/children apparel, men’s and accessories categories. The bottom-line outperformance stems from the strong sales, margin expansion and SG&A leverage.

After years of volatile earnings and a sideways stock price, the company has found some consistency. The last two quarters prior to Q3 reported triple digit surprises to the upside on earnings. Q1 saw a 430% beat, while Q2 saw a 260% beat. Since that May earnings report, the stock is up over 250%

Dillard’s hasn’t missed on earnings since early 2020, making the Q3 beat the sixth straight.  

Estimates

Because of the big earnings beat, analysts are hiking estimates across most time frames.

Over the last 7 days, estimates for the current quarter have been raised by 110%, from $4.16 to $8.75. For the current year, we have seen jump of 57% in that same time frame.

Estimates going higher is nothing new for the company as analysts have been raising estimates over the last 60 days. During that time frame, we have seen the current year head 89% higher.

The Technicals

Dillard’s is up massively from its COVID lows of $21 a share. Now trading over $350, investors are getting nervous about chasing the stock. Let’s go over some buyable levels on a pullback.

Since the stock has gone straight up since the beginning of October, its hard to simply jump in. We have not seen a retracement since and patient investor should watch the halfway back mark at $270 for an entry. That is a far way down from current levels, so investors may also watch the 21-day MA. This momentum indicator is moving higher quickly, but currently resides at the same $270 mark.

If we did get a pull back, there would likely be buyers waiting there.

The 200-day is all the way down at $160, so don’t expect that anytime soon.

Bottom Line

Value players want in this stock because of its low PE. And now, with earnings surging and sales growth showing impressive consistency, Wall Street has found a new favorite stock.

While the stock might be overstretched, look to buy pullbacks to take advantage of the longer-term trend.

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