Target Stock To Likely 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 17. We expect Target’s stock to likely trade higher past Q1 results due to revenues and earnings marginally beating expectations. Following Target’s price cuts in the second half of 2022, its inventory levels are much improved today. These discounting pressures should ease through FY 2023, and management is predicting that the operating margin could rebound to as high as 5% of sales in fiscal Q1. Management expects better operating conditions this year compared to FY 2022, estimating an additional $1 billion in operating income. In the interim, 2023 EPS guidance stands at $7.75 to $8.75, a fairly wide range reflecting uncertainty regarding the economy. It should also be noted that TGT’s traffic rose almost 2.1% (on a 12.3% spike the previous year) in FY’22, meaning that the company is still able to retain the interest of its shopper base despite rampant inflation. Target’s customer loyalty and higher revenue due to omnichannel initiatives and brand partnerships should likely benefit the company’s results in the longer term.

Our forecast indicates that Target’s valuation is $171 per share, which is almost 8% 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 beat consensus estimates slightly

Trefis estimates Target’s Q1 2023 revenues to be around $25.6 Bil, slightly above the consensus estimate. Despite rising costs, Target’s revenue rose 3% year-over-year (y-o-y) to $109 billion in FY’22 on the back of a 2.2% increase in comparable sales. Going forward, we expect Target Revenues to reach $111.5 billion in fiscal 2023, up 2% y-o-y.

2) EPS likely to be marginally above consensus estimates

TGT’s Q1 2023 earnings per share (EPS) is expected to be $1.79 per Trefis analysis, marginally above the consensus estimate. Target’s accelerating promotions to help resolve a mishandled inventory situation from earlier in FY 2022, and higher spending on fuel, freight, transportation, and increased compensation in distribution centers weighed heavily on the company’s profitability. Consequently, Target’s operating income plummeted 57% y-o-y in FY’22, coming in at a meager $3.85 billion, an operating income margin of just 3.5% (compared to 8% the previous year in FY’21). Also, its adjusted earnings per share were chopped by half to $6.02 in FY 2022 from $13.56 in FY 2021.

(3) Stock price estimate higher than current market price

Going by our Target’s Valuation, with an EPS estimate of around $8.49 and a P/E multiple of 20.2x in fiscal 2023, this translates into a price of $171, which is almost 8% 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 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 TGT Return 0% 6% 119%
 S&P 500 Return -1% 7% 84%
 Trefis Multi-Strategy Portfolio -2% 6% 234%

[1] Month-to-date and year-to-date as of 5/15/2023
[2] Cumulative total returns since the end of 2016

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