Consider Buying The Dip In Nordstrom Stock

Having just about managed to tag their pre-COVID highs at the end of January, shares of department store Nordstrom (NYSE: JWN) have been cooling off in the weeks since. As part of the vaccine driven recovery rally seen in the likes of travel, retail, and restaurant stocks last quarter, Nordstrom shares jumped 250% in less than three months from November’s decade lows.

But they seem to have run out of steam in the past few weeks, and find themselves down close to 20% from recent highs. That being said, there’s still a decent case for the bulls here and investors should consider the long-term potential in play.

The catalyst for this current dip was disappointing sales data that came out in January. Wall Street had been expecting big numbers from the holiday season but these failed to materialize. Instead, Nordstrom reported a 22% drop in holiday season sales compared to the same nine-week period in 2019. In the aftermath of the news, Morgan Stanley went so far as to say their expectations for the consensus 2020 EPS print dipped 9% as a result. They maintained their Equal Weight rating on the shares, however, noting that “holiday-related headwinds that impacted the quarter likely abate going forward."

Strong Digital Sales

Indeed, the same report that showed total sales falling also showed digital sales rising 23%, and constituting 54% of total sales; up from 34% a year ago. This shift to digital will be music to investors’ ears and a sure sign that Nordstrom is continuing to pivot well towards a post-COVID world. We’re less than a month away from the company’s Q4 and FY2020 earnings report, and management have said they’re confident that they’ll hit positive EBIT and operating cash flow.

With this in mind, the long case starts to get more appealing, particularly when seen in the context of the recent dip after a blazing end of year rally. There’s a sense that investors are simply taking profit while the fundamentals are still catching up to the recovery hype, which makes for an appealing entry point if you can take the longer-term view.

KeyBanc recently reiterated their Overweight rating and $42 price target, suggesting upside of some 20% from Wednesday’s closing price. They see Nordstrom sitting “at the intersection of two of our key themes: reopening and disruption in luxury.” Around the same time, BMO called the stock a “recovery trade favorite”. Considering shares are trading well below where they were when these comments were made, you can’t help but feel there’s value to be had here.

Long Term Potential

However, any positivity must be tempered with the fact that Nordstrom is still hurting from COVID and remains on the front line of any future lockdowns. On a conference call last week as part of a virtual investor event, the company said they expect 2021 sales to come in around 14% lower than 2019’s. But in the same breath they said 2021 revenue should grow 25% compared to 2020’s figures, confirming that the recovery is well and truly on. If Nordstrom was able to stave off the bankruptcy risk that took down many of its high street peers in 2020, you have to believe it will continue to get through the pandemic and emerge at the other end.

After these forecasts from management last week, Evercore came out a street high price target of $45, which suggests a move for 30% or more is on the cards. Having recently seen how fast shares can move once they get going, you’d have to back them to close that gap in the coming months too, which would make this current dip look like a great buying opportunity in hindsight.