With Target TGT trading 39% off its high, investors are eagerly looking toward its Q3 earnings report on November 16.
The better than expected consumer price Index (CPI) numbers for October should boost optimism surrounding the retail giant’s report. TGT’s third quarter report will also give further insight into consumer spending amid an economic downturn.
The Basics
Target stock has been hit harder than competitor Walmart WMT, which is also set to report next week. Target struggled during the second quarter due to excess inventory amid slower consumer spending and rising inflation. Profits in Q2 fell by more than 90% as the company was forced to sell the excess inventory at steep discounts.
Like Walmart, Target has evolved into more than just a brick & mortar retailer. Target has strived for technological advancements across its website and mobile apps to compete with e-commerce companies such as Amazon AMZN and eBay EBAY.
The company also sells merchandise through periodic exclusive design, creative partnerships, and shop-in-shop experiences, with partners such as Apple AAPL, Disney DIS, Levi’s LEVI, and Ulta Beauty ULTA. Target also generates revenue from in-store amenities such as Target Café, Starbucks SBUX, and Target Optical, becoming a one-stop shop for consumers.
Investors hope that the decline in TGT stock over the last year will turn out to be a long-term buying opportunity. This makes the company’s Q3 report and outlook critical for the stock as Target has now missed earnings expectations for two consecutive quarters.
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Q3 Outlook
The Zacks Consensus Estimate for TGT’s Q3 earnings is $2.14 per share, which would be a decline of -29% from the year prior quarter. Sales for Q3 are expected to be up 3% at $26.36 billion. This is an indication that operating costs are weighing on Target’s profits although the company says inventory issues are behind it.
Earnings estimates for the period are down from $2.42 at the beginning of the quarter. Year over year, TGT earnings are expected to decline -40% to $8.09 per share. However, fiscal 2024 earnings are projected to stabilize and rise 49% to $12.11 per share.
Top line growth is expected, with sales set to rise 3% in fiscal 2023 and another 3% in FY24 to $113.78 billion. This is after the company has already experienced huge top line growth over the last five years.
Performance & Valuation
Year to date, TGT is down -29% to underperform the S&P 500’s -22%. Despite the recent fall, TGT stock is up +208% over the last five years when including its solid dividend to blast the performance of the benchmark and beat its peer group’s +93%.
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Target’s performance over the last five years and its current valuation are reasons to believe its drop could indeed be an opportunity for longer-term investors. Trading around $164 per share, TGT has a P/E of 18.9X. This is below the industry average of 22.5X. Even better, TGT trades nicely below its decade-high of 26.8X and closer to the median of 15.9X.
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Bottom Line
TGT currently lands a Zacks Rank #3 (Hold) and its Retail-Discount Stores Industry is in the top 23% of over 250 Zacks Industries. Trading attractively relative to its past, patient investors may be rewarded for holding Target stock, especially with the approaching holiday season. TGT also offers a generous 2.82% annual dividend yield at $4.32 a share, and the Average Zacks Price Target suggests 26% upside from current levels.
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Target Corporation (TGT): Free Stock Analysis Report
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