Target (TGT) reported fourth-quarter earnings this morning, and … well, it wasn’t pretty. But apparently everyone trading TGT stock today couldn’t care less.
As expected, Target’s sales numbers were crushed by its recent breach in credit card security. TGT earnings dropped 46% to $520 million, or 81 cents per share, for the three months ending Feb. 1. A year ago, Target earnings came to $961 million, or $1.47 a share. That’s an alarming drop in business for the second-largest discount retailer in the United States.
Revenue was ugly, too, off 5.3% to $21.52 billion, which came in well below the Street’s estimates of $22.37 billion. Same-store sales slid 2.5%.
TGT got no respite from forward guidance. Target says it expects current-quarter earnings to range from 60 to 75 cents per share, far below analyst expectations for 88 cents. Meanwhile, full-year Target earnings estimates of $3.85 to $4.15 per share fell under a bar of $4.21.
And yet TGT stock, which has been beaten down by roughly 15% in recent months, was rebounding by 8% of this writing.
TGT Stock: Where’s It Going Next?
The huge decline in Target’s earnings was of course blamed on the breach of Target’s internal security, which led to the hacking of the records of 40 million credit card holders between Nov. 27 and Dec. 15. In addition, criminals also stole personal information on 110 million Americans, such as names, email addresses and street addresses. Shoppers were horrified and responded by staying away at Christmas time.
But this information has been known for some time. So … perhaps the Street was expecting an even worse report, or as I recently pointed out, with this important earnings report out of the way, perhaps investors feel like they can have renewed confidence in Target’s ability to recapture its lost customer base.
Either way, it’s one heck of a relief rally, and it breathed some technical life into TGT stock.
Click to Enlarge As you can see from the accompanying chart, before today’s report, TGT stock had shown a little bit of improvement since the beginning of February. However, today’s huge breakout on strong volume looks quite bullish over the near term. Notice the large white candlestick and the ascending RSI, MACD and Stochastic indicators.
There might be some overhead resistance at the declining 50-day moving average at $59.11, and then again at the $63 level, but the TGT train has now left the station and it could be full speed ahead for this beaten-down stock.
On the business side of the ledger, Target has vowed to continue its share buyback program and keep its dividend intact, which is now just below 3%. The company also has been working hard to restore customer confidence in their security systems, and Target is offering free credit monitoring services for a year to customers who’ve had their data compromised.
Target CEO Gregg Steinhafel also had this to say:
“As we plan for the new fiscal year, we will continue to work tirelessly to win back the confidence of our guests. … We are encouraged that sales trends have improved in recent weeks.”
So is the worst over for Target?
Despite the $17 million in net expenses it bled in the last quarter, it would appear so by the Street’s reaction to today’s report. Even at current levels, investors can still snap up shares at a great price, relative to the most recent peak of last November of $66.89.
Just remember that unless Target begins to show some real improvement (for instance, Target Canada continues to weigh heavily on earnings), the Street might not be as forgiving when the next earnings report is delivered.
But until and unless that happens, I certainly would recommend buying TGT stock at the current price.
As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.