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Factors Likely to Decide Target's (TGT) Fate in Q4 Earnings

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Target Corporation TGT is scheduled to release fourth-quarter fiscal 2019 results on Mar 3, before the market opens. We note that in the trailing four quarters, the bottom line has outperformed the Zacks Consensus Estimate by 8.6% on average. In the last reported quarter, the company delivered a positive earnings surprise of 14.3%.

After registering bottom-line improvement of 24.9% in the third quarter, Target is likely to deliver year-over-year growth in the fourth quarter as well. The Zacks Consensus Estimate for the quarter under review is pegged at $1.66, indicating an improvement of 8.5% from the year-ago quarter. We note that the Zacks Consensus Estimate has been stable in the past 30 days.

The Zacks Consensus Estimate for revenues is pegged at $23,492 million, suggesting growth of 2.2% from the prior-year period.

Key Factors to Note

The holiday season, which coincides with the fourth quarter, did not turn out to be a blissful one for Target with sales coming in below expectations. Management stated that softer-than-expected performance across Electronics, Toys and portions of Home assortment hurt the company’s overall holiday sales.

Comparable sales in the combined November/December period increased 1.4%. This shows a sharp deceleration from growth rate of 5.7% registered in the year-ago period. Notably, comparable digital sales rose 19% during the festive period buoyed by same-day fulfillment services. Clearly, the figure does not look as outstanding when compared with 29% growth witnessed during the 2018 holiday season and 31% increase reported in third-quarter fiscal 2019.

The disappointing performance compelled management to trim fourth-quarter fiscal 2019 comparable sales growth forecast. Target now envisions comparable sales to rise in line with its November/December performance of 1.4% in the fourth quarter. Management had earlier projected comparable sales growth of 3-4% for the final quarter.

Nonetheless, the company reaffirmed fourth-quarter earnings per share estimate of $1.54-$1.74, which suggests an improvement from $1.53 reported in the year-ago quarter, on the back of top-line growth and margin expansion. In the last earnings call, management had guided mid to high-single-digit increase in operating margin during the fourth quarter benefiting from gross margin expansion, offset by small increase in SG&A and D&A expense rates.

Certainly, Target’s focus on new brands, enhancing omni-channel capacities, remodeling stores and expanding same-day delivery options has been driving the top line. The company continued to gain market share across its core merchandise categories, namely Apparel, Essentials & Beauty and Food & Beverage during the holiday season. Further, the company has been undertaking rationalization of supply chain with technology and process improvements. Notably, the company’s digitization initiative has been paying off quite well.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

What’s the Probability of an Earnings Beat?

Our proven model predicts an earnings beat for Target this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Target has a Zacks Rank #3 and an Earnings ESP of +0.78%.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat.

Costco COST has an Earnings ESP of +0.20% and a Zacks Rank of #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gap GPS has an Earnings ESP of +4.42% and a Zacks Rank #3.

Casey's General Stores CASY has an Earnings ESP of +3.45% and a Zacks Rank #3.

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