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Earnings Preview: Target

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Target Corporation (TGT - Free Report) , the operator of general merchandise and food discount stores in the United States, is slated to report its third-quarter 2012 financial results on November 15, 2012.

The current Zacks Consensus Estimate for the quarter stands at 77 cents a share, indicating an estimated year-over-year decrease of about 6.1%.

Second-Quarter Synopsis

Target’s second quarter earnings of $1.06 per share rose 3.4% from $1.03 earned in the prior-year quarter and also came ahead of the Zacks Consensus Estimate of $1.01. However, excluding costs related to Canadian operations, earnings from its U.S. operations came in at $1.12 per share, up 4.6% from $1.07 posted in the year-ago quarter.

Total revenue increased 3.3% to $16,779 million from the prior-year quarter, and exceeded the Zacks Consensus Estimate of $16,769 million.

Going forward, the company expects third quarter 2012 adjusted earnings in the range of 83 cents to 93 cents a share. Moreover, the company expects comparable store sales to increase in the low single-digit in November 2012.

October Sales

Target registered an increase of 2.4% in comparable store sales for October 2012, driven by a rise in average transaction size.  However, sales were below an escalation of 3.3% marked in October 2011. Target also lagged its peer, Costco Wholesale Corporation (COST - Free Report) , which witnessed an augmentation of 7% in comparable store sales during the same period.

Minneapolis-based Target Corporation announced that net retail sales for October elevated 3% to $4,982 million from $4,839 million reported in the year-ago period.

The company also unveiled its sales results for the third quarter of 2012. Target registered a 2.9% augmentation in comparable store sales, while net retail sales rose 3.4% to $16,601 million. However, the reported sales remain below the Zacks Consensus Estimate of $16,940 million.

Earnings Estimate Revisions- Overview

Estimate revisions for the company is exhibiting a positive trend for the upcoming quarter, indicating that the analysts covering the stock remain constructive on the company’s growth potential and brand strength.  

Agreement of Estimate Revisions

Clearly, a positive sentiment is evident among the analysts as 4 out of 11 estimates have been revised upwards in the last 30 days, while none were lowered for the third quarter. Moreover, for the current fiscal, 4 out of 14 estimates have been revised in the upward direction, while one moved in the opposite direction.  

Analysts expect Target to deliver healthy results owing to the easy year-over-year comparison and growing market share in the U.S.

Moreover, the company’s exclusive merchandising strategy, including its alliance with Neiman Marcus, is expected to drive sales in the near term. Further, Target’s price matching policy is expected to bring in incremental sales during the key holiday season.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the upcoming quarter remained stable over the period of last 30 days. However, estimates jumped 4 cents to $4.40 for fiscal 2012.

Positive Surprise History

With respect to earnings surprises, Target has topped the Zacks Consensus Estimate over the last four quarters in the range of 3% to 10.8%. The average remained at 6.5%, indicating that the company has surpassed the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our View

Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy, and new merchandise assortments, are expected to drive comparable-store sales and operating margins in the long term.

Moreover, Target’s P-fresh remodel program, 5% REDcard Rewards program, City Target stores, The Shops at Target initiatives shield the company from any unprecedented events.

Given the lingering macro economic concerns, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Target holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.  

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