Target Corporation (TGT) stock has held its own thus far in 2016, but the most important trading day of the young year is looming for shares of the big-box retailer. On Wednesday morning, Target will report fourth-quarter results for the holiday quarter ended Jan. 31.
In the cutthroat retail industry, a lot of stock is put into juicing those holiday numbers.
So what should Target stock owners know before the company reports Wednesday?
TGT Stock: Q4 Earnings Preview
Target stock has been outpacing the S&P 500 nicely in 2016. Shares are up 1% on the year, compared to a 5%-plus drop in the benchmark index.
Many argue retail should be one of the industries to benefit as the prolonged drought in oil prices puts extra money in the pocket of the American consumer — money that can be used to shop, of course.
But if the results of two of Target’s biggest competitors, Amazon.com, Inc. (AMZN) and Wal-Mart Stores, Inc. (WMT), are any indication, TGT stock could be in for some pain on Wednesday.
Amazon shares plunged 13% after earnings came in at just $1 per share, far less than the $1.56 analysts expected. Walmart stock also took a 5% hit last week after underwhelming revenue and forward guidance.
As for TGT stock, analysts aren’t expecting anything spectacular. The Street is calling for revenue to increase 0.4% year-over-year, and earnings per share are expected to clock in at $1.54 – a mere 2.7% growth rate.
This tepid growth comes as everyone in retail is trying to keep pace with AMZN, which has built a seemingly insurmountable lead in e-commerce. Nothing’s impossible of course, but with tens of millions of paying Amazon Prime members and a logistics network that’s the envy of the industry, it’s a helluva company to compete with.
And while TGT has tried to compete in cyberspace, its efforts have been underwhelming. On Cyber Monday, for instance, its website briefly went down. Who knows how much business Target missed out on, or how many customers vowed not to use Target again?
On the positive side, Target earnings have met or exceeded expectations in five straight quarters, and according to Zacks Equity Research, their model predicts EPS will likely beat the consensus.
And from a long-term perspective, TGT stock looks like a solid value play. Its forward price-to-earnings ratio is 14, below the market average, and its 3.1% dividend is nothing to scoff at considering the 10-year Treasury is yielding around 1.8%.
Clearly, you’re not throwing your money away if you’re investing in Target stock at these levels. But if you’re looking to make a short-term earnings play, be careful getting too optimistic on TGT — especially considering the recent performance of its peers.
As of this writing, John Divine was long AMZN. You can follow him on Twitter at@divinebizkid or email him at editor@investorplace.com.
