Gaining 12% Year To Date, Will Q1 Results Drive Target’s Stock Higher?

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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 22. We expect Target’s stock to likely trade higher past Q1 results due to revenues and earnings beating expectations. Target’s shares have spiked so far this year in hopes of an impending growth rebound after seeing a shifting consumer sentiment and slowing company sales in 2023. The retailer’s FY’23 results showed the company making progress on margins despite weak sales, and investors are cheering for the expected return to grow in 2024. Looking ahead, the company anticipates a 3% to 5% comparable sales decline in the fiscal first quarter, and earnings per share in the range of $1.70 to $2.10, compared to its EPS of $2.05 in Q1 2023. For the full fiscal year, it is guiding for comparable sales in the range of flat to up 2%, and earnings per share of $8.60 to $9.60. That said, Target’s customer loyalty and higher revenue due to omnichannel initiatives and brand partnerships should likely benefit the company’s results in the long term. TGT announced a new subscription tier called Target Circle 360 that will include unlimited free same-day delivery for orders over $35 in one hour with no delivery fees and free two-day shipping, on top of all other perks – at the cost of $49/year. The company is looking into adding new benefits to entice Amazon and Walmart customers.

TGT stock has seen little change, moving slightly from levels of $175 in early January 2021 to around $160 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Overall, the performance of TGT stock with respect to the index has been lackluster. Returns for the stock were 31% in 2021, -36% in 2022, and -4% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TGT underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TGT face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Target’s valuation is $178 per share, which is almost 11% 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 2024 revenues to be around $24.9 Bil, slightly above the consensus estimate. The retailer finished 2023 with $106 billion in revenues, down 2% year-over-year (y-o-y) – its first fiscal year with declining sales since 2016. TGT’s comparable sales fell 3.70% in 2023, reflecting weak demand for discretionary goods like apparel, electronics, and home goods, which make up the majority of Target’s revenue. Going forward, we expect Target Revenues to reach $107.9 billion in fiscal 2024, up marginally y-o-y.

2) EPS likely to be marginally above consensus estimates

TGT’s Q1 2024 earnings per share (EPS) is expected to be $2.10 per Trefis analysis, marginally above the consensus estimate. While sales are still weak, Target’s profitability has improved significantly. The company’s gross margin rose from 24.6% in FY’22 to 27.6% in FY’23, reflecting lower markdowns and falling expenses related to freight and supply chain, and its operating margin improved from 3.5% in FY’22 to 5.3% in FY’23. As a result, the retailer’s full-year 2023 earnings per share (EPS) came in at $8.94, up 50% from the prior-year period. The retailer demonstrated that it can deliver solid profits even in times of weaker demand, and investors applauded its better-than-expected results.

(3) Stock price estimate higher than current market price

Going by our Target’s Valuation, with an EPS estimate of around $9.42 and a P/E multiple of 18.9x in fiscal 2024, this translates into a price of $178, which is almost 11% 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.

Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 TGT Return -1% 12% 122%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 651%

[1] Returns as of 5/20/2024
[2] Cumulative total returns since the end of 2016

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