Target Q3 Earnings Preview: Buy TGT Stock After Walmart's Growth?

Target jumped over 2% Thursday after rival Walmart impressed Wall Street once again with its comps and e-commerce growth. So is it time to buy TGT stock heading into earnings? Read More...

Target TGT stock jumped over 2% Thursday after rival Walmart WMT impressed Wall Street once again with its comps and e-commerce growth. Target is also coming off its own blowout second-quarter results that helped its stock price soar nearly 20% in one day.

Quick WMT & Economic Review

Walmart touched a new high Thursday morning before it slipped slightly on the day. Walmart topped our quarterly earnings estimates and saw its U.S. comp sales jump 3.2%. And WMT’s e-commerce sales surged 41% as the world’s largest retailer continues to expand its digital and delivery offerings.

Meanwhile, the Dow, S&P 500, and Nasdaq all sit right at brand new highs as investors continue to show love for better-than-feared earnings results, the Fed’s third interest rate cut, some U.S.-China trade war progress, and solid U.S. jobs data. Plus, the National Retail Federation projects solid holiday shopping season sales, while U.S. unemployment rests near 50-year lows.

Target’s Pitch

Target, which operates over 1,800 stores, has bolstered its e-commerce business and delivery options like everyone from Kroger KR to Chipotle CMG in the Amazon AMZN era. Clearly, Target’s various online ordering, pick up, and delivery options are compelling when investors take a look at TGT’s price chart. But Target has also regained strength through its commitment to store redesigns and opening new smaller locations in college towns and urban areas.

On top of that, Target has been able to keep and attract more younger consumers, unlike department stores such as Macy’s M, through trendy lines and affordable furniture, home décor, and fashion. This includes the launch of over 20 private-label brands over the last serval years, along with various limited-release partnerships with higher-end brands such as Hunter Boot.

Along with bigger-ticket items, one of Target’s most important food brands going forward will be its new Good & Gather, which it announced right before its second quarter release. Target called the new offering its “flagship brand” and it will over time phase out Target’s existing brands such as Archer Farms.

Other Fundamentals

Target announced in September that its board authorized a new $5 billion share repurchase program, which will begin after the completion of the current $5 billion program. Target has also committed to transforming its supply chain and providing “industry-leading pay and benefits combined with enhanced training and career growth opportunities.” This should help Target maintain a strong workforce amid our current tight labor market.

Target also currently pays an annualized dividend of $2.64 per share for a 2.43% yield. This comes in above the 10-year U.S. Treasury’s 1.8%, Walmart’s 1.75%, and Costco’s COST 0.86%. TGT is also part of our Retail – Discount Stores industry, which sits in the top 11% of our more than 250 Zacks industries right now.

Meanwhile, Target shares have soared 105% in the last two years to blow away its industry’s 23% average and WMT’s 35%. TGT stock closed regular trading Thursday at $111.11 per share, just a few dollars off its 52-week highs. And Target currently sports “A” grades for both Value and Growth and a “B” for Momentum in our Style Scores system to help it earn an “A” VGM grade.

Q3 Outlook & Beyond

Target’s Q3 revenue is projected to jump 3.6% from the year-ago period to reach $18.47 billion, based on our current Zacks Consensus Estimates. This would match last quarter’s sales expansion and come on top of Q3 2018’s 5.6% growth. Plus, the company’s third-quarter comps are expected to pop 3.67%, which would beat Q2’s 3.4%.

The company’s full-year fiscal 2019 sales are projected to jump roughly 4%, with 2020 expected to come in 3.3% higher at $80.94 million. Both of these estimates compare favorably to 2018’s 3.6% full-year sales growth and 2017’s 3.5%.

At the bottom end of the income statement, TGT’s adjusted Q3 earnings are projected to pop 8.3%, with 2019’s full-year figure expected to surge 14.5%. Peeking a bit further down the road, TGT’s fiscal 2020 EPS figure is projected to climb nearly 7% higher than our 2019 estimate.

Bottom Line

Target has seen its longer-term earnings estimate revisions trend completely upward in the last seven days to help it earn a Zacks Rank #2 (Buy). The company is set to report its Q3 2019 financial results on Wednesday, November 20, as part of a busy time for retailers.

Target stock could be due for a small post-earnings pullback given its impressive run. Nonetheless, TGT appears to be worth considering as a longer-term buy.

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Target Q3 Earnings Preview: Buy TGT Stock After Walmart's Growth?

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