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Buy Target (TGT) Stock After Walmart's (WMT) Strong Holiday Quarter?

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Shares of Target (TGT - Free Report) have climbed 10% since the start of the year as part of the broader market comeback. The question is should investors think about buying Target stock after its rival Walmart (WMT - Free Report) posted better-than-expected Q4 earnings Tuesday?

Overview

Walmart’s adjusted quarterly earnings jumped 6% to reach $1.41 per share and easily surpassed our $1.33 estimate. The company also posted 40% full-year e-commerce growth and 3.6% fiscal 2019 U.S. comps expansion, which will likely help shake off Amazon (AMZN - Free Report) -based worries (also read: Buy Walmart Stock After Blowout Holiday Quarter Earnings?).

Walmart’s stock price dipped on Wednesday following the release of its Q4 earnings results Tuesday. But this doesn’t mean the strong quarter will hurt shares of WMT in the long-run as it continues to show that its digital improvements and online pickup and delivery offerings have boosted sales. Likewise, Target has rolled out its own modern retail initiatives, along with Costco (COST - Free Report) , Kroger (KR - Free Report) , and others.

Target released its November/December sales results in January that showed that comparable sales popped 5.7%, which came on top of the prior-year holiday period’s 3.4% comps expansion. 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.”

For the full year, Target expects its digital sales will surge over 25% for the fifth consecutive year. TGT has continued to revamp its supply chain, introduced same-day delivery at many locations, improved its digital and pricing strategies, redesign stores, and opened smaller locations in urban areas and college towns in order to attract and retain customers. 

 

Outlook

Moving on, Target reaffirmed its Q4 comparable sales growth estimate of roughly 5%. This would fall in line with the third quarter’s 5.1% comps growth and blow by Q4 2017’s 1.8% expansion. “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 a statement.

Meanwhile, our current Zacks Consensus Estimate calls for Target’s adjusted Q4 earnings to jump 11.7% to hit $1.53 per share. Target’s full-year earnings are projected to surge 14.4%. We should also note that Target has seen some positive earnings estimate revision activity for Q4 over the last 30 days.

Bottom Line

Target stock slipped 0.80% to $72.71 a share during regular trading hours Wednesday, which marked a 20% downturn from its 52-week high of $90.39 a share and gives TGT plenty of room to run heading into its fourth-quarter earnings release. On top of that, Target is a dividend payer that has consistently raised its quarterly payout.

The Minneapolis-based company is also currently trading at 13.1X forward 12-month Zacks Consensus EPS estimates. This represents a significant discount compared to its industry’s 25.4X average and the S&P’s 16.9X. Furthermore, Target is 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 is scheduled to release its fourth quarter and full-year 2018 financial results on March 5.

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