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Time to Buy into Target's (TGT) Post Earnings Rally?

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Target (TGT - Free Report)  headlined Tuesday’s trading session with its stock spiking +12% after exceeding fourth quarter expectations this morning. Following today’s rally Target’s stock has rebounded and soared +17% year to date but is still down -20% over the last two years with CEO Brian Cornell vowing to get the retail giant’s profitability and mojo back.

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Improved Traffic Trends Boost Q4 Results

Target witnessed another quarter of improved traffic which was a catalyst for its post-earnings rally as consumer shopping behavior has been geared toward its omni-channel peer Walmart (WMT - Free Report)  over the last few years amid high inflation. Optimistically, Target stated its same-day services increased 13.6% sequentially which was promising news to investors' ears considering in-store pickups, drive-ups, and shipped items now represent 10% of the company’s total sales.  

Year over year, Target’s Q4 earnings soared 57% to $2.98 per share versus $1.89 a share in the comparative quarter. This beat the Zacks Consensus of $2.41 per share by 23% with Target now surpassing earnings expectations for five consecutive quarters. Fourth quarter revenue of $31.91 billion rose 2% YoY and topped estimates of $31.84 billion. Overall, Target’s annual earnings nearly doubled during its fiscal 2024 to $8.94 per share despite total revenue decreasing -1% to $107.4 billion.  

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Favorable EPS Guidance & Outlook

For the first quarter, Target expects EPS to be between $1.70-$2.10 per share which falls in range of the current Zacks Consensus of $2.07 a share or 1% growth. Target forecasts annual EPS to be $8.60-$9.60 per share in its FY25 which also falls in line with Zacks estimates of $9.17 a share or 9% growth.

Reasonable Valuation

Target’s P/E valuation is supportive of today’s rally as TGT shares trade at 16.4X forward earnings and a pleasant discount to its Zacks Retail-Discount Stores Industry average of 22.4X. Furthermore, Target’s stock trades nicely beneath the S&P 500’s 21.4X and Walmart’s 25.3X.

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Target’s turnaround has become more apparent with it being noteworthy that its cash from operations more than doubled in FY24 to $8.6 billion. At the moment Target’s stock sports a Zacks Rank #2 (Buy) which suggests its short-term performance should continue to outperform the broader market.

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