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Buy Target (TGT) Stock After Q4 Earnings on E-Commerce Growth?

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Shares of Target (TGT - Free Report) surged over 4.5% Tuesday after it reported its fourth quarter financial results before the opening bell. The climb helped continue the retail power’s strong 2019. So is now the time to buy shares of TGT as it proves that its e-commerce investments have paid off.

Q4 Overview

Target’s overall Q4 revenues came in roughly flat from the year-ago period at $22.98 billion, which fell short of our $23.15 million Zacks Consensus Estimate. Meanwhile, TGT’s adjusted quarterly earnings climbed 12% to match our $1.53 per share estimate.

Maybe more importantly, the retailer’s Q4 comparable sales surged 5.3%, on the back of 4.5% traffic expansion. Plus, Target’s comparable digital sales soared 31% during the quarter that included the vital holiday shopping period. On top of that, full-year comp sales jumped 5%, which marked Target’s strongest performance since 2005. And Target’s comparable digital sales surged 36% to help extend a run of five straight years of at least 25% growth in the increasingly important retail category

Q1 & 2019 Guidance

Looking ahead, Target now expects to post a low to mid-single digit increase in comparable sales in the first quarter of 2019. Company executives also called for adjusted earnings in the rage of $1.32 to $1.52 a share. Investors should note that the high-end of TGT’s guidance came in well above our current $1.43 estimate.

Better yet, the retailer provided full-year earnings guidance between $5.75 and $6.05 per share, which blows away our current $5.59 a share estimate. “We have been driving an ambitious agenda to transform our Company, evolve with our guests and drive strong growth,” CEO Brian Cornell said in a company statement.

“On every count we've been successful, and as we enter 2019, we will continue to lead the industry by adapting, innovating and delivering more for our guests and shareholders.”

 

 

Overall Outlook

Despite Target’s solid fourth quarter, digital sales growth, and impressive full-year earnings outlook, we can see that shares of TGT have dramatically lagged its industry over the last three years. TGT stock closed regular trading Tuesday at $76 a share. This marked a 16% downturn from its 52-week high and might set up a solid buying opportunity for those high on Target.

Target, like rivals Walmart (WMT - Free Report) , Costco (COST - Free Report) , Kroger (KR - Free Report) , CVS (CVS - Free Report) , and others, has improved its e-commerce business in order to better compete in a modern retail age where Amazon (AMZN - Free Report) is the standard. The Minneapolis-based retailer has introduced same-day delivery at many locations and revamped its supply chain.

Target has also improved its pricing and digital strategies, redesign many stores, and opened smaller locations in college towns and urban areas. Furthermore, the company has continued to roll out new clothing lines and partnered with hip brands to build buzz, among other growth initiatives.

Bottom Line

Target has been a hard stock to own over the last few years and the retailer faces tough competition in a quickly changing landscape. But the company is a dividend payer that has upped its quarterly payout over the years. And TGT is currently trading at 12.9X forward 12-month Zacks Consensus EPS estimates. This represents a discount compared to its 12-month high of 16.2X and its industry’s 19.7X average, which means Target stock presents pretty solid value at the moment.

Target is currently a Zacks Rank #3 (Hold), but this could change as analysts update their estimates based on Tuesday’s guidance.

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