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Target (TGT) Up 14.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Target (TGT - Free Report) . Shares have added about 14.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Target’s Q4 Earnings Beat Estimates, Digital Sales Surge

Target Corporation continued with its stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. The quarter marked fourth straight sales and earnings beat. Notably, comparable sales increased for the 15th successive quarter. The metric gained from strength in the digital channel, given customers’ increased shift to online shopping amid coronavirus-led social distancing.

The company has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. Again, robust holiday season and recent stimulus checks of $600 to individuals also contributed to the upbeat performance.

In spite of stronger-than-anticipated results, management refrained from providing sales and earnings projection for fiscal 2021 and beyond citing uncertain outlook for consumer shopping patterns amid the ongoing pandemic.

Let’s Delve Deeper

Target reported adjusted earnings of $2.67 per share that outshone the Zacks Consensus Estimate of $2.53, and rose sharply from $1.69 per share reported in the year-ago period.

This general merchandise retailer generated total revenues of $28,339 million that increased 21.1% from the year-ago period and outpaced the Zacks Consensus Estimate of $27,513 million. We note that sales jumped 21% to $27,997 million, while other revenues were up 28.7% to $342 million.

Markedly, Target witnessed sturdy market-share gains in all five core merchandise categories owing to strong demand. We note that stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) surged 212%. Sales through Drive-Up were up more than 500% during the quarter under review.

Meanwhile, comparable sales for the quarter increased 20.5%, backed by 13.1% jump in average ticket. Comparable traffic grew 6.5%. Digital comparable sales soared 118% and accounted for two-third of the overall comp growth. Comparable stores sales grew 6.9% during the quarter.

Gross margin expanded 50 basis points to 26.8% during the quarter, gaining from merchandising actions, mainly from exceptionally low markdown rates. This was partly offset by increased digital fulfillment and supply chain costs as well as the impact of category mix. Again, operating margin grew 140 basis points to 6.5%.

Target’s debit card penetration remained flat at 12.4%, while credit card penetration fell 160 basis points to 9.3%. Total REDcard penetration declined to 21.7% from the year-ago quarter’s 23.3%.

Other Financial Details

During the fourth quarter, Target paid dividends of $341 million but did not repurchase shares.  At the end of the quarter, the company had $4.5 billion remaining under its $5-billion share-buyback program approved in September 2019. Notably, management informed that the company has resumed share repurchases in fiscal 2021.

The company ended the quarter with cash and cash equivalents of $8,511 million, long-term debt and other borrowings of $11,536 million and shareholders’ investment of $14,440 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 15.09% due to these changes.

VGM Scores

At this time, Target has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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