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Pre-Q2 Earnings: Is Target (TGT) Stock a Portfolio Must-Have?
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As Target Corporation (TGT - Free Report) gears up to release its second-quarter fiscal 2024 results on Aug 21 before the opening bell, investors and analysts alike are keenly watching to see how the retail giant will navigate the current economic landscape. With the retail sector facing ongoing economic shifts and evolving consumer behavior, Target's performance in this quarter will be a crucial indicator of its resilience and adaptability.
The Zacks Consensus Estimate for the to-be-reported quarter’s revenues is pegged at $25.3 billion, which suggests an increase of 1.9% from the prior year’s level. This shows a sharp improvement from a decline of 3.1% witnessed in the preceding quarter.
On the earnings front, the consensus estimate has risen by a cent over the past 30 days to $2.18 per share. This figure suggests a significant 21.1% increase from the year-ago quarter.
Image Source: Zacks Investment Research
The discount store-chain operator has a trailing four-quarter earnings surprise of 22.4%, on average. In the last reported quarter, the company’s bottom line missed the Zacks Consensus Estimate by a margin of 1%.
Target Corporation Price, Consensus and EPS Surprise
Our proven model predicts that an earnings beat is likely for Target this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Target has an Earnings ESP of +0.29% and carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors at Play
Target has been proactive in adapting its operations to stay competitive. The company's strategic initiatives, such as digital advancements, store investments, partnerships with popular brands and targeted merchandise strategies aimed at capturing market share, are likely to have bolstered its performance.
We expect a 1% increase in comparable sales for the second quarter of fiscal 2024, driven by an anticipated 2.2% rise in the number of transactions, though this may be partially offset by a projected 1.2% decline in the average transaction amount.
The relaunch of Target's loyalty program, Target Circle, aims to simplify and enhance the customer experience. By offering tailored rewards and incentives, the revamped program is designed to boost customer retention. The integration of credit and debit card rewards, along with same-day delivery options, provides added convenience and value, driving repeat purchases.
Target is likely to register margin expansion, thanks to clean inventory as well as lower supply chain and freight costs. We foresee gross margin and operating margin expansion of 110 and 70 basis points, respectively, for the to-be-reported quarter.
Despite the aforementioned tailwinds, we acknowledge persistent consumer concerns over economic stability, illustrated by underlying inflationary pressure and a higher interest rate environment. These factors contribute to reduced consumer confidence and discretionary spending, particularly impacting non-essential categories within Target's product portfolio.
Price Performance
Target has seen its stock price fall by 13.2% over the past three months. The performance is in stark contrast to its peers, which is evident when comparing it to the Zacks Retail–Discount Stores industry. The industry witnessed a rise of 4.2% during the same period.
Additionally, the broader Zacks Retail-Wholesale sector has decreased 3.2%, while the S&P 500 Index has risen 0.5% during the same period.
Target’s close competitors, Costco Wholesale Corporation (COST - Free Report) , Walmart Inc. (WMT - Free Report) and Ross Stores, Inc. (ROST - Free Report) , have advanced 9.8%, 13.8%, and 6.5%, respectively, in the same timeframe.
Image Source: Zacks Investment Research
Valuation Picture
From a valuation perspective, Target shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 13.8, below the five-year median of 17.06, and the Retail-Discount Stores industry’s average of 30.16, the stock offers compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Target's stock has faced headwinds over the past three months. This decline can be traced to a mix of broader market dynamics and company-specific challenges. Investors are currently divided on whether the stock is set for further decline or is on the verge of a recovery. Well, Target is navigating a tough economic landscape marked by shifting consumer preferences. It is grappling with significant challenges across multiple fronts, ranging from softness in key product categories to competitive pressures.
Nonetheless, this Minneapolis, MN-based company is making strategic moves that could yield results in the long run. The focus on enhancing its digital shopping experience and investing in stores, combined with the expansion of same-day services, is poised to drive growth. Additionally, efforts to optimize supply-chain operations are expected to help improve margins.
Conclusion
Given the challenges and strategic initiatives, current and prospective investors should proceed cautiously. Existing investors may need to evaluate whether to hold or adjust their positions based on the company’s ability to overcome its short-term difficulties and capitalize on its long-term strategies. New investors should weigh the potential benefits of Target’s growth and technology investments against the ongoing operational and market challenges.
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Pre-Q2 Earnings: Is Target (TGT) Stock a Portfolio Must-Have?
As Target Corporation (TGT - Free Report) gears up to release its second-quarter fiscal 2024 results on Aug 21 before the opening bell, investors and analysts alike are keenly watching to see how the retail giant will navigate the current economic landscape. With the retail sector facing ongoing economic shifts and evolving consumer behavior, Target's performance in this quarter will be a crucial indicator of its resilience and adaptability.
The Zacks Consensus Estimate for the to-be-reported quarter’s revenues is pegged at $25.3 billion, which suggests an increase of 1.9% from the prior year’s level. This shows a sharp improvement from a decline of 3.1% witnessed in the preceding quarter.
On the earnings front, the consensus estimate has risen by a cent over the past 30 days to $2.18 per share. This figure suggests a significant 21.1% increase from the year-ago quarter.
Image Source: Zacks Investment Research
The discount store-chain operator has a trailing four-quarter earnings surprise of 22.4%, on average. In the last reported quarter, the company’s bottom line missed the Zacks Consensus Estimate by a margin of 1%.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
What the Zacks Model Unveils
Our proven model predicts that an earnings beat is likely for Target this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Target has an Earnings ESP of +0.29% and carries a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors at Play
Target has been proactive in adapting its operations to stay competitive. The company's strategic initiatives, such as digital advancements, store investments, partnerships with popular brands and targeted merchandise strategies aimed at capturing market share, are likely to have bolstered its performance.
We expect a 1% increase in comparable sales for the second quarter of fiscal 2024, driven by an anticipated 2.2% rise in the number of transactions, though this may be partially offset by a projected 1.2% decline in the average transaction amount.
The relaunch of Target's loyalty program, Target Circle, aims to simplify and enhance the customer experience. By offering tailored rewards and incentives, the revamped program is designed to boost customer retention. The integration of credit and debit card rewards, along with same-day delivery options, provides added convenience and value, driving repeat purchases.
Target is likely to register margin expansion, thanks to clean inventory as well as lower supply chain and freight costs. We foresee gross margin and operating margin expansion of 110 and 70 basis points, respectively, for the to-be-reported quarter.
Despite the aforementioned tailwinds, we acknowledge persistent consumer concerns over economic stability, illustrated by underlying inflationary pressure and a higher interest rate environment. These factors contribute to reduced consumer confidence and discretionary spending, particularly impacting non-essential categories within Target's product portfolio.
Price Performance
Target has seen its stock price fall by 13.2% over the past three months. The performance is in stark contrast to its peers, which is evident when comparing it to the Zacks Retail–Discount Stores industry. The industry witnessed a rise of 4.2% during the same period.
Additionally, the broader Zacks Retail-Wholesale sector has decreased 3.2%, while the S&P 500 Index has risen 0.5% during the same period.
Target’s close competitors, Costco Wholesale Corporation (COST - Free Report) , Walmart Inc. (WMT - Free Report) and Ross Stores, Inc. (ROST - Free Report) , have advanced 9.8%, 13.8%, and 6.5%, respectively, in the same timeframe.
Image Source: Zacks Investment Research
Valuation Picture
From a valuation perspective, Target shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 13.8, below the five-year median of 17.06, and the Retail-Discount Stores industry’s average of 30.16, the stock offers compelling value for investors seeking exposure to the sector. Additionally, the stock currently has a Value Score of A, further validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Target's stock has faced headwinds over the past three months. This decline can be traced to a mix of broader market dynamics and company-specific challenges. Investors are currently divided on whether the stock is set for further decline or is on the verge of a recovery. Well, Target is navigating a tough economic landscape marked by shifting consumer preferences. It is grappling with significant challenges across multiple fronts, ranging from softness in key product categories to competitive pressures.
Nonetheless, this Minneapolis, MN-based company is making strategic moves that could yield results in the long run. The focus on enhancing its digital shopping experience and investing in stores, combined with the expansion of same-day services, is poised to drive growth. Additionally, efforts to optimize supply-chain operations are expected to help improve margins.
Conclusion
Given the challenges and strategic initiatives, current and prospective investors should proceed cautiously. Existing investors may need to evaluate whether to hold or adjust their positions based on the company’s ability to overcome its short-term difficulties and capitalize on its long-term strategies. New investors should weigh the potential benefits of Target’s growth and technology investments against the ongoing operational and market challenges.