Wall Street Whiplash: 3 Retail Analysts on How to Predict Stock Performance During the Most Unpredictable of Times

Wall Street’s bull run has come to an end, with a global pandemic dragging stocks into a bear market for the first time in 11 years.

Investor anxieties have escalated over the rapid spread of the coronavirus, which has sickened 15,900 and killed 208 people in the United States. Hundreds of companies have already sounded the alarm on the outbreak’s impact on their business, from disrupting supply chains in China — where the illness originated — to forcing the temporary closures of stores across the world. Some have also forecast a hit on their next earnings reports, others have withdrawn their fiscal-year guidances altogether amid the unknowns surrounding COVID-19.

As current uncertainties about sales can trickle down and dent stock prices, analysts are taking an even deeper dive into companies’ balance sheets to determine resilience in challenging times. Market watchers and investors are looking beyond profits and revenues to line items such as cash and cash equivalents, company’s most liquid assets or access to a revolving credit facility, which gives companies the flexibility to repay and reborrow loans as needed.

“At this point, we know the sales are likely to look bad at least for the next couple of weeks when everything is shut down,” said B. Riley FBR analyst Susan Anderson. “We all know the retailers that are highly leveraged with long-term debt, but we have now moved on to short-term liquidity, and companies that don’t have enough cash or access to a revolver to bridge the downturn could become the concern.”

Still, according to Susquehanna Financial Group analyst Sam Poser, companies might be better off absorbing immediate losses associated with store closures and playing the long game when it comes consumer values. It boils down to this: Would customers want to work for or shop at a company that puts potential profits before the safety of their employees and customers?

Speaking with FN, he noted that retailers put their finances — and even more, their reputations — at risk when they opt not to shutter outposts during the health crisis. He commended Lululemon, Steve Madden and Nike for being among the first companies to announce temporary store closures for the next couple of weeks or so, forgoing sales in exchange for the health and well-being of their workers and consumers.

“Those companies that have decided to proactively close their stores will likely emerge from this horrible time, generally, in far better shape than those that have decided to keep their stores open,” Poser wrote in a distribution note this week. “Companies waiting for the government to mandate changes in store hours will be late and could suffer dire consequences from customers, scorned employees and investors.”

He added, “We contend that the long-term risks to any company that chooses to keep its stores open during the current COVID-19 coronavirus emergency are dire.”

Throughout the week, many retailers have followed suit, shutting down their stores across the country while maintaining e-commerce operations as coronavirus fears force shoppers to go online. Jane Hali, CEO of retail investment research firm Jane Hali & Associates, told FN she has observed a surge in the number of consumers using digital services. She also suggested that omnichannel retailers offering alternatives to in-store shopping — such as online services, online incentives, speedier deliveries and curbside pickups — have the best chance of reducing the coronavirus’ impact, calling out Walmart, Target and Nordstrom as key examples.

“Businesses will have to contend with consumers’ enhanced [omnichannel] expectations beyond this coronavirus period,” she added. “This is sweeping across many industries, from retail and food delivery to business meetings, supply chains and education.”

Looking ahead, experts say investors will be closely watching how severely the pandemic has impacted company bottom lines and how long it will take for heavily affected retailers to get back on their feet.

“Even when the virus does clear and maybe things get back to somewhat normal, I have to imagine that it’ll take a while to ramp that consumer spending back up,” Anderson added. “If companies were healthy prior to this crisis, they should probably be OK getting through it, but if this snowballs into a longer-term recession, obviously 2021 will be at risk, too.”

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