Welcome to the Stock of the Day.
Shares of big box retailer Target (TGT) are on the rise after it announced that profit fell 46% last quarter and it guided below the Street view for the first quarter. Huh? Is there a logical explanation for Wall Street’s reaction? Is this a buying opportunity for Target stock?
Find out here.
Target or “Tar-zhay” as some loyalists affectionately refer to the store, was founded in 1902 in Minneapolis as the Dayton Dry Goods Company. The first Target store would open in 1962, and the company was officially renamed the Target Corporation in 2000. From its humble beginnings as a small general goods store, Target has grown to become the nation’s second-largest discount retailer, with more than 1,700 locations and over 360,000 employees across the U.S.
The company has remained a top competitor in its industry by expanding its product selection to include fresh produce, organic, frozen, and refrigerated items, as well as a wide variety of apparel, electronics, home goods and more.
TGT shares climbed to a one-month high after the company announced better-than-expected results for the fourth quarter. Compared with the year ago quarter, profit fell 46% to $520 million. Adjusted earnings per share were $1.30, which trounced the 79 cents per share consensus estimate by 65%.
Meanwhile, sales ticked down 3% to $21.52 billion, topping the $21.45 billion consensus estimate. The real nail in the coffin was Target’s forward guidance.
Looking ahead to Q1 2014, Target forecasts adjusted earnings in the range of 60 cents per share to 75 cents per share. For full-year 2014, Target anticipates adjusted EPS between $3.85 to $4.15.
Target’s Q1 guidance is well below the 85 cents per share consensus estimate while its 2014 range is on the lower end of the $4.15 EPS Street view. Notably, Target is in its first full year of international operations (having opened over 100 stores in Canada), this is expected to lift results.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Target’s report card lists D- and F-ratings on six fundamentals: Sales, operating margin and earnings growth, as well as earnings momentum, earnings surprises and analyst revisions.
In fact, of the eight fundamental metrics I graded TGT on, it only pulled off a B-rating for its return on equity.
Meanwhile, institutional buying pressure has all but dried up for TGT; it receives an F for its Quantitative Grade. While Target began 2013 at a B-rated buy, it has since fallen to an F-rating and probably won’t budge from sell territory for some time.
Bottom Line: As of this posting I consider Target stock an F-rated Sell.