Case Study: Target (TGT) stock according to high performing analysts
Key Points
Performance
Target shares rose by 1.84% this week, pushing their year-to-date gains up to 9.40%. This compares favorably to the S&P 500 which is up by 5.79% on a year-to-date basis thus far.
Event & Impact
Target posted fourth quarter results this week, beating Wall Street estimates on the top and bottom lines. During Q4, TGT’s revenue totaled $31.40 billion, beating Wall Street’s consensus estimate by $670 million. Target’s Q4 non-GAAP earnings-per-share came in at $1.89, beating Wall Street’s consensus estimate by $0.49/share.
Noteworthy News:
Although Target’s sales were on the rise during Q4, its margins continue to suffer, coming in well below pre-pandemic levels. However, the company’s management team highlighted a $5 billion capex program with a goal to resolve these margin related issues.
Nobias Insights
52% of recent articles published by credible authors on Target shares offer a “neutral” bias. After the stock’s 9.4% year-to-date rally, only 38% credible Wall Street analysts believe TGT shares are likely to rise in value. The average price target being applied by these credible analysts is $179.57, which implies upside potential of approximately 8.2% relative to the stock’s current share price of $166.00.
Bullish Take Mark Soloman, a Nobias 4-star rated author, said, “Earlier this month, Target said it would invest $100 million through 2026 to add more than half a dozen additional sortation facilities to its U.S. network. Its goal is to reach 15 sort centers within the next four years, up from the current level of nine.”
Bearish Take Mariane Wilson, a Nobias 4-star rated author, said, “For fiscal 2023, Target expects that comparable sales will range from a low single-digit decline to a low single-digit increase. The retailer expects full-year earnings per share of between $7.75 and $8.75, below Wall Street’s expectations of $9.23 per share.”
TGT Mar 2023
Target (TGT) reported its fiscal 2022 Q4 results this week, beating Wall Street’s expectations on both the top and bottom lines. These results culminate a terrible year for the company - fundamentally speaking - where its earnings-per-share fell by approximately 56%.
Yet, management provided forward looking guidance which calls for a return pre-pandemic profitability in the not too distant future and it appears that Wall Street agrees, with TGT shares up by 9.4% on the year thus far throughout 2023.
Although the stock has already outperformed the S&P 500 by a wide margin on a year-to-date basis (during this period of time, the S&P as risen by 5.79%), credible analysts still see high single digit upside potential. What’s more, Target pays a 2.6% dividend yield, pointing towards a strong total return year for shareholders, overall, if the analyst consensus is correct.
Bullish Nobias Credible Analysts Opinions:
Harrison Miller, a Nobias 4-star rated author, covered Target’s Q4 earnings results in an article published this week at Investors.com. Miller highlights the company’s bottom-line results, stating, “Target's adjusted earnings dropped 40% to $1.89 per share while revenue climbed 1.3% to $31.48 billion for the quarter. That managed to top the FactSet consensus of a 56% earnings drop to $1.40 per share on a slight dip in revenue to $30.675 billion.”
Miller moved onto the top-line results, writing, “Total comparable sales inched up 0.7% for the period. Same store sales rose 1.9%, offset by a 3.6% decline in digital sales. FactSet projected same store sales to fall 1.6% during the period.”
Looking at Target’s updated forward guidance, Miller said, “For Q1 2023, Target forecasts comparable sales to range from a low-single digit decline to a single-digit increase. Adjusted earnings and GAAP earnings are both expected to range from $1.50 to $1.90 per share on a 4% to 5% increase in operating income.”
Mark Soloman, a Nobias 4-star rated author, also touched upon Target’s Q4 results in an article this week. Like Miller, Solomon highlighted the company’s operational results. But, he also went into depth about the company’s growth plans moving forward, putting a spotlight on management’s stated plans regarding capital expenditures on its supply chain facilities.
Solomon said, “The Minneapolis-based retailer also announced plans to spend up to $5 billion this year across a variety of disciplines, including an expansion of its supply chain facilities.” He continued, “Earlier this month, Target said it would invest $100 million through 2026 to add more than half a dozen additional sortation facilities to its U.S. network. Its goal is to reach 15 sort centers within the next four years, up from the current level of nine.”
“These facilities, erected next to or near Target locations, would take distribution pressure off the stores and allow employees to focus more time on serving customers,” Solomon wrote. Furthermore, he said, “Starting in the spring, Target will expand an offering known as Drive Up Returns that allows customers to return new, unopened items from their car at no charge. Drive Up Returns will be available on purchases made through Target.com accounts, the retailer said.” “The objective, according to Target, is to build in more efficiencies to the returns process and reduce the costs and inconvenience of handling mail-in returns,” noted Soloman.
Bearish Nobias Credible Analysts Opinions:
Mariane Wilson, a Nobias 4-star rated author, covered Target’s Q4 results and management investment plans in an article at Chain Store Age this week; however, instead of distribution and supply chain, Wilson focused her analysis on Target’s margin issues and management’s plans to fix them. She began by saying, “Target Corp. beat fourth-quarter expectations amid a “very challenging environment” and said it plans to expand its owned-brands as consumers spending shifted away from discretionary items.”
Later, Wilson wrote, “For fiscal 2023, Target expects that comparable sales will range from a low single-digit decline to a low single-digit increase. The retailer expects full-year earnings per share of between $7.75 and $8.75, below Wall Street’s expectations of $9.23 per share.”
These disappointing full-year EPS expectations are due to poor margins, yet it appears that the company is on its way towards resolving those issues. “In a presentation at the company's annual Financial Community Meeting in New York,” Wilson wrote, “Target said it plans to open about 20 stores in a variety of sizes in 2023, with many of the locations including new design elements that reflect the local community, sustainable features and experiences that highlight new brands, assortment and services.”
“In addition,” Wilson continued, “ Target is making investments in about 175 of its existing stores, ranging from full remodels to the addition of Ultra Beauty or Apple shop-in-shop experiences, or expanded capacity for same-day fulfillment service” “In other 2023 initiatives,” she added, “Target plans to launch or expand more than 10 owned brands. In an appeal to an increasingly value-conscious shopper, the retailer said will offer more items starting at $3, $5, $10 and $15. It also plans to emphasize more markdown campaigns and add new features to its Target Circle loyalty program.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
And in conclusion, she said, “During the next three years, Target said it expects its operating income margin rate will reach, and begin to move beyond, its pre-pandemic rate of 6 percent, and believes it could reach an operating income margin rate of 6 percent as early as fiscal 2024, depending on the speed of recovery for the economy and consumer demand.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, it appears as though the credible author and credible analyst communities haven’t been sold on this turnaround plan. 52% of recent articles about Target published by the credible authors that Nobias tracks have expressed a “Neutral” sentiment towards TGT shares.
Furthermore, only 38% of the credible Wall Street analysts that the Nobias algorithm follows who have expressed an opinion on TGT shares believe that they’re likely to rise in value. Currently, TGT is trading for $166.00/share. The average price target that the credible analyst community is placing on TGT is $179.57.
Therefore, although the credible bears outnumber the credible bulls on Wall Street, it appears that the bulls have higher conviction in their theses because even with 5 out of the 8 opinions that we’re compiling coming in bearish, the average price target associated with TGT shares implies upside potential of approximately 8.2%.
Disclosure: Nicholas Ward has no TGT position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.