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Target (TGT - Free Report) is a Zacks Rank #1 (Strong Buy) that operates as a general merchandise retailer in the United States. The company provides a variety of goods such as household essentials, groceries, electronics, toys and apparel.
The company is coming off an earnings beat earlier this month. The stock surged higher after the report, but has since come in because of geopolitical risks that have weakened the broader market.
Despite all the negatives out there, the stock is well off its 2022 lows, which is better than most stocks can claim. Because of this, investors should consider Target as place to hide in a weak market. While the relative strength is a plus, the long-term earnings power could give investors a huge opportunity at current trading levels.
More About the Company
Target was originally founded in 1902 and headquartered in Minneapolis, Minnesota. It has over 2,000 stores and 450,000 employees.
Target currently has a market cap of $96 billion and has Zacks Style Scores of “B” in Value and Growth, as well as an “A” in Momentum. The Forward PE is 14 and the company pays a 1.7% dividend.
Q4 Earnings
Target reported EPS earlier this month seeing a surprise to the upside of 11.5%. EPS came in at $3.19 v the $2.86 expected. This was the 13th straight beat for the company, who hasn’t missed since 2018.
Revenues came in a little light, with Target seeing $30.6B v the $31.5B expected. Lower than expected holiday sales is the reason for the miss on revenues.
Despite lower sales, Target saw improved margins and stronger guidance. The company said that Q1 Same Store Sales operating margins “will be favorable in relation to historical performance, but well below its first quarter 2021 rate of 9.8%”. Additionally, FY22 will see high-single digit growth with operating margins 8% or higher.
Year over year comparable traffic was up 8.1%, while digital sales saw a 9.2% increase y/y.
After earnings, a lot of the analyst commentary focused on improving margins and a positive outlook.
Raymond James commented: “The company's investments into supply chain, private-label, and omnichannel distribution have positioned it well to continue to gain further market share over the coming years.”
Stifel was impressed with the robust e-commerce growth of 9.2%. The firm sees Target sustaining its pandemic share gains and has a Buy rating and a $280 price target on the stock.
Estimates
With those price targets going higher, earnings estimates are jumping as well. Over the last 60 days, estimates are trending upwards across all time frames.
For the current quarter, we have seen estimates raised by 13%, from $2.71 to $3.06. For the current year, we have seen a 9% move higher in that same time frame. And numbers are also moving 9% higher for next year.
Analysts are citing same-day services as a point of differentiation for Target relative to its peers. This is an important catalyst to its digital media business and a catalyst for future sales growth.
The Technicals
The stock took off in the back half of 2020, moving from the $100 area to a high of $268.98 in late 2021. Target saw only minor pullbacks during that bull run, but is now going through its biggest drawdown since COVID began.
Since hitting highs in November, the stock saw a 30% pullback before rallying about 25% off the 2022 lows. It is still trading about 25% off its 2021 highs, trading near the $200 level.
TGT is below all its moving averages, with the 50-day moving average at $215 recently acting as a major resistance level. Investors might want to look for the gap fill at $200 if the market continues to be weak. If the market sees a serious sell-off, the halfway back retracement is at $175 and the 61.8% Fibonacci retracement is $157.
A clear bullish signal would be the break of the 50-day MA, which could bring a short-term opportunity to the 200-day at $237.
Bottom Line
Target is separating itself from the retailers and businesses that thrived during the pandemic. The key for Target is sustaining that momentum it built over the last two years.
Looking at recent earnings, the only hiccup seems to be holiday sales, which weren’t as strong as expected. Despite supply chain and inflation issues, the guidance looks good and the long-term outlook positive. If Target can hit the bullseye on EPS later this year, expect shares to rally into 2023.
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Bull of the Day: Target (TGT)
Target (TGT - Free Report) is a Zacks Rank #1 (Strong Buy) that operates as a general merchandise retailer in the United States. The company provides a variety of goods such as household essentials, groceries, electronics, toys and apparel.
The company is coming off an earnings beat earlier this month. The stock surged higher after the report, but has since come in because of geopolitical risks that have weakened the broader market.
Despite all the negatives out there, the stock is well off its 2022 lows, which is better than most stocks can claim. Because of this, investors should consider Target as place to hide in a weak market. While the relative strength is a plus, the long-term earnings power could give investors a huge opportunity at current trading levels.
More About the Company
Target was originally founded in 1902 and headquartered in Minneapolis, Minnesota. It has over 2,000 stores and 450,000 employees.
Target currently has a market cap of $96 billion and has Zacks Style Scores of “B” in Value and Growth, as well as an “A” in Momentum. The Forward PE is 14 and the company pays a 1.7% dividend.
Q4 Earnings
Target reported EPS earlier this month seeing a surprise to the upside of 11.5%. EPS came in at $3.19 v the $2.86 expected. This was the 13th straight beat for the company, who hasn’t missed since 2018.
Revenues came in a little light, with Target seeing $30.6B v the $31.5B expected. Lower than expected holiday sales is the reason for the miss on revenues.
Despite lower sales, Target saw improved margins and stronger guidance. The company said that Q1 Same Store Sales operating margins “will be favorable in relation to historical performance, but well below its first quarter 2021 rate of 9.8%”. Additionally, FY22 will see high-single digit growth with operating margins 8% or higher.
Year over year comparable traffic was up 8.1%, while digital sales saw a 9.2% increase y/y.
Target Corporation Price and EPS Surprise
Target Corporation price-eps-surprise | Target Corporation Quote
Analysts Focus on Long Term Outlook
After earnings, a lot of the analyst commentary focused on improving margins and a positive outlook.
Raymond James commented: “The company's investments into supply chain, private-label, and omnichannel distribution have positioned it well to continue to gain further market share over the coming years.”
Stifel was impressed with the robust e-commerce growth of 9.2%. The firm sees Target sustaining its pandemic share gains and has a Buy rating and a $280 price target on the stock.
Estimates
With those price targets going higher, earnings estimates are jumping as well. Over the last 60 days, estimates are trending upwards across all time frames.
For the current quarter, we have seen estimates raised by 13%, from $2.71 to $3.06. For the current year, we have seen a 9% move higher in that same time frame. And numbers are also moving 9% higher for next year.
Analysts are citing same-day services as a point of differentiation for Target relative to its peers. This is an important catalyst to its digital media business and a catalyst for future sales growth.
The Technicals
The stock took off in the back half of 2020, moving from the $100 area to a high of $268.98 in late 2021. Target saw only minor pullbacks during that bull run, but is now going through its biggest drawdown since COVID began.
Since hitting highs in November, the stock saw a 30% pullback before rallying about 25% off the 2022 lows. It is still trading about 25% off its 2021 highs, trading near the $200 level.
TGT is below all its moving averages, with the 50-day moving average at $215 recently acting as a major resistance level. Investors might want to look for the gap fill at $200 if the market continues to be weak. If the market sees a serious sell-off, the halfway back retracement is at $175 and the 61.8% Fibonacci retracement is $157.
A clear bullish signal would be the break of the 50-day MA, which could bring a short-term opportunity to the 200-day at $237.
Bottom Line
Target is separating itself from the retailers and businesses that thrived during the pandemic. The key for Target is sustaining that momentum it built over the last two years.
Looking at recent earnings, the only hiccup seems to be holiday sales, which weren’t as strong as expected. Despite supply chain and inflation issues, the guidance looks good and the long-term outlook positive. If Target can hit the bullseye on EPS later this year, expect shares to rally into 2023.