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Why Is Target (TGT) Up 3.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Target (TGT - Free Report) . Shares have added about 3.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Target’s Q4 Earnings Meet, Provides Upbeat FY19 View

Target Corporation  posted decent fourth-quarter fiscal 2018 performance and an upbeat fiscal 2019 view. This Minneapolis-based company’s impressive holiday sales number formed the perfect base for the final quarter. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results.

Let’s Delve Deeper

This operator of general merchandise stores reported adjusted earnings of $1.53 per share that came in line with the Zacks Consensus Estimate and improved 12.5% from the prior-year period. This year-over-year growth can be attributable to fall in SG&A expenses, lower net interest expense and share repurchase activity.

Target now projects fiscal 2019 adjusted earnings in the band of $5.75-$6.05 per share, up from $5.39 reported in fiscal 2018. For the first quarter, adjusted earnings are envisioned to be between $1.32 and $1.52.

The company generated sales of $22,734 million that remained flat year over year, while other revenue fell 2.5% to $243 million. The Zacks Consensus Estimate for the quarter is $23,074 million.

Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases along with technology and process improvements.

Meanwhile, comparable sales for the quarter increased 5.3% compared with 3.6% growth witnessed in the year-ago period. The number of transactions rose 4.5%, while the average transaction amount improved 0.8%. Comparable digital channel sales surged 31% and added 2.4 percentage points to comparable sales. Management now anticipates comparable sales growth in low-to-mid-single digit during the both first quarter and fiscal 2019.

Gross margin contracted 40 basis points to 25.7% due to increased digital fulfillment and supply chain costs, partly mitigated by the benefit of merchandising strategies. Operating margin remained flat at 4.9%. Management expects moderate improvement in operating income rate which will translate in to mid-single digit growth in operating margin dollars during fiscal 2019. Management expects to witness a marginal decline in the operating margin but a low single-digit increase in operating margin dollars during the first quarter.

Target’s debit card penetration contracted 30 basis points to 12.6%, while credit card penetration fell 30 basis points to 11%. Total REDcard penetration declined to 23.6% from 24.2% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $617 million and paid dividends of $334 million. The company still had about $1.6 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,556 million, long-term debt and other borrowings of $10,223 million and shareholders’ investment of $11,297 million. Management expects to incur capital expenditure of $3.5 billion during fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Target has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Target has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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