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Buy Target (TGT) Stock After Strong Holiday Sales Despite Macy's Sell-off?

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Shares of Macy's (M - Free Report) plummeted 18% Thursday after the department store giant lowered its full-year earnings guidance on the back of weaker-than-projected holiday sales. On the other hand, Target (TGT - Free Report) posted impressive comparable sales growth during the vital November and December holiday shopping period that helps show that its innovations to fight off Amazon’s (AMZN - Free Report) encroachment have paid off.

Quick Macy’s Overview

Macy's cut its full-year earnings forecast after its same-store sales climbed just roughly 1% during the vital holiday shopping period. CEO Jeff Gennette said in a statement that the retailer saw solid sales growth during the Thanksgiving holiday shopping period. After that, however, sales dropped until the week of Christmas. Meanwhile, Kohl's (KSS - Free Report) saw its holiday comp sales fall from 6.9% growth in the year-ago period to 1.2% expansion in 2018.

Shares of Macy’s tumbled over 18% through morning trading, while KSS dropped 7%. These subdued, at least compared to last year, holiday sales announcements helped send shares of fellow retailers, including Walmart (WMT - Free Report) , Gap (GPS - Free Report) , and Nordstrom (JWN - Free Report) , down as well. Target also saw its stock price take a hit along with the broader retail industry, despite the fact that TGT posted impressive holiday sales results.

 

Target Holiday Shopping

Target’s comparable sales jumped 5.7% in the November and December shopping period. This growth came on top of last year’s 3.4% comps expansion. Increased traffic primarily drove the retailer’s same-store sales growth, along with a slight increase in average ticket.

All five of Target’s main merchandise categories expanded during the vital retail shopping stretch. The firm’s Drive Up service and Store Pickups surged 60% from the prior-year period. Plus, digital comps soared 29%, “driven entirely by growth in store-fulfilled digital sales,” according to a company release.

Overall Outlook

Target expects to see its digital sales soar more than 25% for the fifth consecutive year as it continues to ramp up its new-age retail offerings. TGT revamped its supply chain and digital and pricing strategies and introduced same-day delivery at many locations—which was made possible by its acquisition of grocery delivery startup Shipt.

Target has also worked to redesign stores and open smaller locations in urban areas and college towns. “Given our fourth quarter outlook, we are on track to deliver Target's strongest full-year comparable sales growth since 2005, market-share gains across all of our core merchandising categories, and double-digit growth in Adjusted EPS,” CEO Brian Cornell said in prepared remarks.

“In 2019, we expect to build on this momentum as we gain further scale in our fulfillment capabilities and deliver profitable growth throughout the year.”

Target reaffirmed its Q4 comparable sales growth estimate of roughly 5%, which would see it reach roughly $75.57 billion, and maintained its adjusted full-year earnings guidance of between $5.30 and $5.50 a share. Looking ahead, our current Zacks Consensus Estimate calls for Target’s adjusted Q4 earnings to jump 10.2% to hit $1.51 per share. Meanwhile, the company’s full-year earnings are projected to surge 14.4% to reach $5.39 a share.

At the top of the income statement, TGT’s quarterly revenues are expected to pop 1.6% to $23.13 billion. But this estimate could change based on Target’s recently released holiday shopping results.

Bottom Line

Target is currently a Zacks Rank #3 (Hold) based mostly on its recent mixed earnings revision activity. TGT does sport an “A” grade for both Value and Momentum and a “B” for Growth in our Style Scores system. Investors should also remember that on top of its positive digital growth and modern retail initiatives, Target is a dividend payer that just declared a quarterly dividend of $0.64 per common share.

The Minneapolis-based company is also currently trading at 12.6X forward 12-month Zacks Consensus EPS estimates, which represents a major discount compared to its industry’s 22.9X average and the S&P’s 15.6X. Target is also trading well below its five-year high of 20.1X and its five-year median of 14.4X. Therefore, we can say that TGT stock presents relatively solid value at the moment.

Target stock slipped 3.80% to $67.62 a share through morning trading Thursday. This marks a roughly 25% downturn from its 52-week high of $90.39 a share and could set up a solid buying opportunity.

All in all, Target stock might be one to consider at the moment if investors want to be in the retail space. But TGT stock has been pretty turbulent over the last five years, up just 10.5%, which falls far below the S&P 500’s 46% jump.

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