With The Stock Almost Flat This Year, Will Q2 Results Drive Target’s Stock Higher?

Target (NYSE: TGT), the second-largest discount chain in the U.S., is scheduled to report its fiscal second-quarter results on Wednesday, August 21. We expect Target’s stock to likely trade higher past Q2 results due to revenues and earnings beating expectations. Looking ahead, the company anticipates Q2 comparable sales growth to be flat to up 2%. The company also expects adjusted EPS of $1.95 to $2.35 in Q2. 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 (NASDAQ: AMZN) and Walmart (NYSE: WMT) customers. TGT stock has increased 2% to $145 since the beginning of this year, underperforming the broader indices, with the S&P growing 18% over the same period. In sharp contrast, WMT has seen its stock rise 42% over the same period.

TGT stock has seen a decline of 15% from levels of $175 in early January 2021 to around $145 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the decrease in TGT stock has been far from consistent. 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 recovery?

Our forecast indicates that Target’s valuation is $160 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 Q2? for more details.

(1) Revenues expected to beat consensus estimates slightly

Trefis estimates Target’s Q2 2024 revenues to be around $25.7 Bil, slightly above the consensus estimate. The retailer’s Q1 2024 revenues fell 3% year-over-year (y-o-y) to $25 billion. TGT’s comparable sales fell 3.70% in Q1, reflecting weak demand for discretionary goods like apparel, electronics, and home goods, which make up the majority of Target’s revenue. Inventory at the end of Q1 was 7% lower than last year. Going forward, we expect Target Revenues to reach $107 billion in fiscal 2024, down marginally y-o-y.

2) EPS likely to be marginally above consensus estimates

TGT’s Q2 2024 earnings per share (EPS) is expected to be $2.21 per Trefis analysis, marginally above the consensus estimate. The company’s gross margin rose 140 basis points to 27.7% in Q1, reflecting lower markdowns and falling expenses related to freight and supply chain, and its operating margin improved slightly to 5.3%. The retailer’s Q1 2024 earnings per share (EPS) came in at $2.03, almost flat compared to the prior-year period.

(3) Stock price estimate higher than current market price

Going by our Target’s Valuation, with an EPS estimate of around $9.35 and a P/E multiple of 17.1x in fiscal 2024, this translates into a price of $160, 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 Aug 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 TGT Return -4% 2% 100%
 S&P 500 Return 2% 18% 150%
 Trefis Reinforced Value Portfolio 5% 12% 733%

[1] Returns as of 8/20/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios

See all Trefis Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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