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Target (TGT) Up 8.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Target (TGT - Free Report) . Shares have added about 8.6% in that time frame, outperforming 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 Q1 Earnings & Sales Surpass Estimates

Target Corporation reported impressive first-quarter fiscal 2019 performance and an upbeat view for the second quarter. Robust traffic, favorable store comps and a surge in comparable digital sales are clearly yielding results for the company. Both the top and bottom line not only beat the respective Zacks Consensus Estimate but also increased year over year.

Let’s Delve Deeper

The company reported adjusted earnings of $1.53 per share that surpassed the Zacks Consensus Estimate of $1.43 and improved 15.9% from the prior-year period. This year-over-year growth can be attributable to higher sales and share repurchase activity.

Target now projects second-quarter adjusted earnings between $1.52 and $1.72 per share, the mid-point of which $1.62 is higher than $1.47 reported in the year-ago period. For fiscal 2019, management continues to anticipate adjusted earnings in the band of $5.75-$6.05 per share, up from $5.39 reported in fiscal 2018.

The company generated sales of $17,401 million, up 5.1% year over year, while other revenue inched up 0.5% to $226 million. The Zacks Consensus Estimate for the quarter is $17,540 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 4.8% compared with 3% growth witnessed in the year-ago period. This was the eighth successive quarter of comparable sales growth. The number of transactions rose 4.3%, while the average transaction amount improved 0.5%. Comparable digital channel sales surged 42% and added 2.1 percentage points to comparable sales. Management envisions both the second quarter and fiscal 2019 comparable sales to increase in low-to-mid-single digit range.

Gross margin contracted 20 basis points to 29.6% due to increased digital fulfillment and supply chain costs, partly mitigated by the benefit of merchandising strategies. Operating margin expanded 20 basis points to 6.4%. The company envisions mid-single digit increase in operating income in fiscal 2019.

Target’s debit card penetration shrunk 40 basis points to 13.1%, while credit card penetration fell 20 basis points to 10.4%. Total REDcard penetration declined to 23.5% from 24.1% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $277 million and paid dividends of $330 million. The company still had about $1 billion remaining under its $5 billion share buyback program. The company ended the quarter with cash and cash equivalents of $1,173 million, long-term debt and other borrowings of $11,357 million and shareholders’ investment of $11,117 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Target has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise 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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