Target (TGT Quick QuoteTGT - Free Report) has seen a substantial increase in investor interest following the release of its latest Q4 earnings report. 

Target provides an array of goods ranging from household essentials and electronics to toys and apparel for men, women, and kids. It also offers food and pet supplies, home furnishings and decor, home improvement, automotive products, and seasonal merchandise. It operates a large store format and currently has a store in every state of the U.S.

Let’s take a look at Target’s latest earnings report and analyze a few of its key financial metrics.

Earnings Analysis

Target reported their Q4 earnings before the market opened today on March 1st. It officially reported earnings of $3.19 per share; the Zacks consensus estimate for this quarter was $2.86, representing an earnings beat of $0.33 or roughly 11.5%. 

Target’s EPS estimate for fiscal 2023 is $13.24 as of February 2022, up by 36.8% from February of 2021. And for the next three to five years, the retailer is expected to expand its bottom line by 14.4%.

In their Q3 earnings last November, Target had a 5.6% positive earnings surprise, resulting in a 5.3% decrease in share price. Investors acted negatively to the surprise due to Target stating that it was absorbing some of the higher costs caused by the pandemic instead of passing them onto customers, eating their margins.

Out of the last seven earnings reports, the share price was impacted negatively three times after beating the estimated consensus. 

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Quarterly sales were $31 billion, missing the estimate of $31.5 billion by -1.7%. This is Target’s first revenue miss out of their last seven earnings reports, but its top line rose 9.4% year-over-year. 

The revenue estimate for fiscal 2023 is up 16% from February 2021. 

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Other Financial Metrics

Book value per share for Target has increased 47.8% over the last five years, with a high of $30.45 in July of 2021. 

Looking back a little further, book value per share has increased by 22.3% over the last ten years and the current book value per share for Target is $28.81. Target has been growing at its fastest rate within the last five years. 

Target is currently trading at a 15.3X forward earnings multiple. This is roughly 7.5% lower than their five-year median P/E ratio of 16.5X and 35% lower than the high of 23.6X in October of 2021. 

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Out of a group of eight peers in the retail industry, Target has surpassed all over the last five years in return on investment. The cumulative return over the last five years for its peer group is 142.9% compared to Target’s cumulative return over the last five years of 281.5%.

Target’s annualized return is 30.7% over the last five years, and its peer group’s annualized return is 19.4%. During this same five-year period, Target has had a much higher ROI than the S&P 500’s cumulative return of 91.3%.

Additionally, the big-box retailer has increased its dividend each year in the last five years and has a five-year annualized dividend growth of 4.7%. Its dividend currently yields 1.8% on an annual basis. Historically, Target has increased its dividend for 50 years straight. 

Free cash flow for Target is currently $5.9 billion, up 136% from its $2.5 billion low in 2019 and down roughly 33% from its $7.9 billion high in the first half of 2021. 

Target has a Value Score of A, a Growth Score of B, and a Momentum Score of C. Its overall VGM score is an A. Target is currently a Zacks Rank #3 (Hold). 

Forward Statements

Target is looking to invest more in smaller-sized stores for suburban and urban-like areas. Historically, Target has concentrated on larger stores that serve a wider area. However, by investing in smaller buildings, the company is planning to penetrate areas that they previously could not tap into, increasing their customer base. 

While Target faces heavy competition in the retail industry due to the rapid expansion of online shopping, it’s significantly invested in its logistics and direct-to-consumer operations. And even though pandemic-induced online shopping numbers have decreased, there are more people online shopping than ever, which Target has taken advantage of. 

TGT currently has no stores outside of the United States, limiting its geographical reach. Many of TGT’s competitors operate inside and outside of the United States. 

Following the report, Target announced a new minimum wage range of $15 to $24 due to the struggles they have had filling open jobs.  

Target has recently transformed into a big player within the retail industry. It has experienced significant growth over the last five years and has time and time again beat earnings estimates Target has big rivals in the industry, but it has had a much better return on investment in the recent term compared to its peers. I believe that Target will continue its retail dominance, and investors searching for a retail stock to add to their portfolios should consider TGT. 

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