Target Corporation (NYSE:TGT) will report first-quarter earnings results Wednesday before the opening bell.
Despite last week’s disappointing retail sales report showing poor spending numbers for April, analysts remain broadly positive about the numbers TGT will announce.
But nothing is a slam-dunk, as evidenced by the punishment unleashed on Kohl’s Corp. (NYSE:KSS) and Macy’s, Inc. (NYSE: M), both of which disappointed investors last week.
TGT stock closed Friday at $78.53, up 3.45% on the year to date, besting the broader averages as well as the 2.75% gains in the SPDR S&P Retail ETF (NYSE:XRT).
Sure, the 3.45% year-to-date gains may appear somewhat pedestrian compared to, say, the 30% gains enjoyed by some tech stocks. But few companies have had to deal with the level of embarrassment as TGT in the past year.
The biggest story was Target’s data breach, involving the personal information of some 70 million customers. This was followed by the abrupt dismissal of if its CEO. All the while, the company was attempting an ill-advised entry into Canada.
All told, TGT stock, which in April hit a new all-time high of $83.98, has been and remains an incredible turnaround story, especially when factoring in 17% and 34% gains over the past six months and 12 months, respectively. It had bested both the Dow and the S&P 500 during that span.
Investors should consider taking some profits off the table.
Target Earnings Outlook
For the most recent quarter, TGT is expected to post $1.03 in earnings per share — a 47% increase over last year’s 70 cents. Revenue is projected to be $17.09 billion, up slightly above the $17.05 billion posted in the year-ago quarter. For the full year, analysts expect TGT to grow earnings 6.5% to $4.55 per share, while full-year revenue of $74.26 billion calls for an increase of 2.3%.
What stands out here is the expected 47% year-over-year jump in earnings per share, pointing to how bad the year-ago-quarter was. TGT has been working with some easy year-over-year comparisons. But the next couple of quarter will get progressively harder.
Why? Simply put, the company has already dug itself out of the ditch — at least for now. TGT stock suffered from the result of the data breach as well as from poor execution. The optimal time to buy the stock was when it was down near its 52-week low, 30% below current levels. Buying when TGT just reached a new all-time high doesn’t make sense now.
What is there left to achieve? What’s the new catalyst?
Bottom Line for TGT Stock
TGT has already turned things around. The easy money on this stock has already been made. So buying of TGT stock at this level, ahead of Wednesday’s numbers, is risking some sort of a correction after an incredible run in TGT stock. Despite how optimistic analysts may be about the just-ended quarter, guidance is what will determine the stock’s next direction. And I don’t expect much in the way of guidance.
Why? U.S. retail sales didn’t budge in April, according to last week’s report. The numbers flatlined, falling short of 0.2% growth estimates. And the month-over-month numbers appear even worse, given that March data was revised upward to a show 1.1% gain versus the prior reported 0.9% increase.
Sure, a lot of the April data factored in big-ticket items like automobiles. But even when adjusting out things like building materials, cars and food services, the number remained the same.
Has TGT figured out some magical sales formula that failed to work for Macy’s or Kohl’s? Maybe. But with 35% TGT stock gains on the table, that’s too much risk to assume in a sector that doesn’t look promising.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
