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Target (TGT) Poised for Growth: Should You Buy the Stock?

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Target Corporation (TGT - Free Report) has outperformed the Zacks categorized Retail-Discount and Variety industry in the past six months with return of 11.9% compared with 2.8% for the latter. This growth is mainly backed by the company’s strategic initiatives, solid surprise history, upward estimates trend and strong financials. Further, we believe that the Zacks Rank #2 (Buy) company offers a sound investment opportunity, as evident from its VGM Score of “A” and long-term earnings growth rate of 8%.

Sturdy Fundamental

Target has undertaken several strategic initiatives to boost performance. The company intends to deploy resources to significantly develop its online platform as well as store facilities to make shopping more convenient for customers. Moreover, with customer preference shifting rapidly to online, it was becoming increasingly important for Target to develop sturdy omni-channel facilities to remain competitive. Further, the company launched an international version of its website, reaching over 200 countries and territories.

Target continues to lay emphasis on developing flexible format stores to penetrate deeper into urban areas. Earlier, the company used to concentrate on large format stores for a particular location, which lowered its accessibility to the country’s densely populated urban regions and space-crunched cities. However, with the changing business scenario and rising competition, it felt the need to have stores of various sizes and formats in order to better serve its target areas. We believe this approach is likely to help the company augment its sales without substantial capital investment.

Robust Earnings

Target continued with its positive earnings surprise streak for the third quarter in row, as it reported third-quarter fiscal 2016 results in the previous month. Further, total sales came in ahead of the Zacks Consensus Estimate. The better-than-expected results prompted management to raise its outlook.

The company’s upbeat performance came on the back of improved traffic and sales trends along with margin expansion and cost containment efforts. Management hinted that the company witnessed sturdy sales in the Back-to-School and Back-to-College season. For fiscal 2016, Target now envisions adjusted earnings per share between $5.10 and $5.30 compared with the previous guidance of $4.80 to $5.20.

Upward Estimate Revision

Following, robust third-quarter fiscal 2016 earnings the company has witnessed upward estimate revision. In the past 30 days, the company’s fiscal 2016 and 2017 earnings estimate have moved up by 5% and 2.3% to $5.21 and $5.38, respectively. In the same time frame, fourth-quarter fiscal 2016 earnings estimate have also increased to $1.65 from $1.62.

TARGET CORP Price, Consensus and EPS Surprise

TARGET CORP Price, Consensus and EPS Surprise | TARGET CORP Quote

Other Stocks to Consider

Other stocks which warrant a look in the retail space include Burlington Stores, Inc. (BURL - Free Report) , Zumiez, Inc. (ZUMZ - Free Report) , both these stocks sport a Zacks Rank #1 (Strong Buy), while Ross Stores, Inc. (ROST - Free Report) carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.

Zumiez delivered an average positive earnings surprise of 30.9% in the trailing four quarters and has a long-term earnings growth rate of 15%.

Ross Stores delivered an average positive earnings surprise of 4.5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.

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