What To Expect From Target’s Stock Post Q3?

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Trefis
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Target

Target (NYSE: TGT), the second-largest discount chain in the U.S., is scheduled to report its fiscal third-quarter results on Wednesday, November 16. We expect Target’s stock to likely see little to no movement due to mixed Q3 results with revenues coming inline and earnings missing market expectations marginally. Target’s accelerating promotions to help resolve a mishandled inventory situation from earlier this year, and higher spending on fuel, freight, transportation, and increased compensation in distribution centers has weighed heavily on the company’s profitability. We expect this trend to continue in the upcoming quarter as well.

Going forward, Target is expecting a lower fall inventory peak than its spring peak, even though the stock-up preceding the holiday season is usually the largest, suggesting the worst of the inventory challenges might be over. The retailer’s management is projecting that profit margins will recover to about 6% of sales in the year’s second half.

Our forecast indicates that Target’s valuation is $173 per share, which is inline with current market price. Look at our interactive dashboard analysis on TGT’s Earnings Preview: What To Expect in Q3? for more details.

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(1) Revenues expected to match consensus estimates

Trefis estimates Target’s Q3 2022 revenues to be around $26.4 Bil, inline with the consensus estimate. Despite rising costs, Target’s revenue rose 3.5% y-o-y to $26 billion in its Q2 on the back of a 2.6% increase in comparable sales. In Q2, Target’s gross and operating margins fell to 21.5% and only 1.2%, respectively, down from 30.4% and 9.8% in the year-ago quarter – as a result of markdowns that were necessary to clear out inventory in previously popular categories like home furnishings. As of July 30, Target had $15.3 billion of merchandise, more than $4 billion higher than the $11.3 billion it held at the same time the year before.

Going forward, we expect Target Revenues to reach $110 billion in fiscal 2022.

2) EPS likely to be marginally below consensus estimates

TGT’s Q3 2022 earnings per share (EPS) is expected to be $2.07 per Trefis analysis, marginally below the consensus estimate. The company’s Q2 EPS was down to just 39 cents per share from $3.64 in the quarter a year ago.

(3) Stock price estimate appropriately priced at current market price

Going by our Target’s Valuation, with an EPS estimate of around $8.10 and a P/E multiple of 21.3x in fiscal 2022, this translates into a price of $173, which is in line with 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 Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 TGT Return 5% -25% 140%
 S&P 500 Return 2% -17% 77%
 Trefis Multi-Strategy Portfolio 5% -18% 223%

[1] Month-to-date and year-to-date as of 11/15/2022
[2] Cumulative total returns since the end of 2016

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