Based on the market reaction, it seems the third quarter couldn’t have gone worse for discount retailer Target (TGT -21.41%). And that initial response looks about right. The company missed third-quarter revenue and earnings estimates and slashed its full-year guidance.
It was the biggest earnings miss for the company in two years. And the stock got rocked. Shares were holding near session lows down a whopping 21.6% as of 12:40 p.m. ET. But amid all the negativity, there might be room for investors to benefit. Target stock has been up and down this year and was already badly trailing the S&P 500 index even heading into earnings. And that’s why some investors should be paying attention.
A growth angle for income investors
After the big earnings miss, Target reduced full-year guidance to a midpoint of $8.60 per share. That’s shy of the $9.35 per share it previously offered and also well below the $9.55 a share expected by analysts, according to CNBC.
One example of the immediate reaction from Wall Street was Citigroup analyst Paul Lejuez downgrading the company to the equivalent of a hold with a price target of $130 per share, citing “very poor results.” And that sentiment might continue to drive the stock lower.
On the earnings call with investors, CEO Brian Cornell pointed to “softness in our discretionary categories” as one primary source of the quarter’s shortfall. There were also costs associated with accelerating inventory purchases in anticipation of the port workers strike last month.
Yet the retail business can be cyclical, and consumers are resilient. Target has long focused on its dividend payments for shareholders. Today’s plunge has now pushed the dividend yield to 3.6%. And the company has raised its quarterly payout by nearly 70% over the last five years.
TGT Dividend data by YCharts
Income investors should take notice. The company has routinely increased its payout each June. That trend is likely to continue. And a rebound in the stock could juice those returns even further.
Citigroup is an advertising partner of Motley Fool Money. Howard Smith has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.
