Target’s Stock To Trade Higher Post Q1 Results?

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Target

Target (NYSE: TGT), the second-largest discount chain in the U.S., is scheduled to report its fiscal first-quarter results on Wednesday, May 18. We expect Target’s stock to likely trade higher due to revenue and earnings beating market expectations. Target’s annual sales grew 35% to $106 billion in 2021 compared to $78 billion two years ago – and it continues to make inroads with its digital sales. Almost $13 billion in digital sales was generated between 2019 and 2021. We expect Target to keep up the momentum in the upcoming quarter as well. According to the retailer, the Q1 margin will be below the prior year’s record mark of 9.8%. That said, even if profit drops to 8% of sales, that still means a higher profit margin than seen in Q1 2019. For the full year of 2022, Target expects its sales to rise by around 5% year-over-year (y-o-y), largely implying that the company will retain most of the extra market share it accumulated during the earlier phases of the pandemic.

Our forecast indicates that Target’s valuation is $244 per share, which is 14% higher than the current market price. Look at our interactive dashboard analysis on TGT’s Earnings Preview: What To Expect in Q1? for more details.

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(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Target’s Q1 2022 revenues to be around $25.2 Bil, slightly ahead of the consensus estimate. In Q4, the company’s comparable sales rose 8.9% during the quarter on top of a 20.5% increase a year ago. In addition, its digital sales rose 9.2% during the quarter. Target handled 8% more transactions in Q4 while average order spending rose. To put things into perspective, Walmart’s traffic during the holidays increased by 3%. Going forward, we expect Target Revenues to reach $110 billion in fiscal 2022. As part of its long-term growth strategy, the company has pledged to invest as much as $5 billion this year in digital and physical store experiences, fulfillment, and supply chain management.

2) EPS likely to be marginally ahead of consensus estimates

TGT’s Q1 2022 earnings per share (EPS) is expected to be $3.21 per Trefis analysis, marginally above the consensus estimate. In Q4, Target’s gross profit margin fell to 26% of sales from 27% a year ago while expenses shrank slightly as a percentage of sales. Despite soaring labor and transportation costs, the company’s increasing market share offset inflationary pressures. As a result, bottom-line profitability rose, landing at 6.8% of sales compared to 6.5% in Q4 2020. The retailer’s earnings per share rose 17% y-o-y to $3.24 per share, boosted by the management’s stock buyback spending.

(3) Stock price estimate higher than the current market price

Going by our Target’s Valuation, with an EPS estimate of around $14.63 and a P/E multiple of 16.6x in fiscal 2022, this translates into a price of $244, which is 14% higher than the current market price.

It is helpful to see how its peers stack up. TGT Peers shows how Target’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 TGT Return -4% -5% 204%
 S&P 500 Return -3% -16% 79%
 Trefis Multi-Strategy Portfolio -6% -22% 211%

[1] Month-to-date and year-to-date as of 5/16/2022
[2] Cumulative total returns since the end of 2016

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