* Reports Q3 2019 earnings Wednesday, Nov. 20 before the bell
* Consensus EPS: $1.19
* Revenue Expectation: $18.44B
Riding on the strength of U.S. consumer spending and success of its turnaround strategy, Target Corporation's (NYSE:TGT) stock has been a star performer this year. Keeping this momentum alive will be the key challenge for the retailer when it reports its third-quarter earnings tomorrow.
Target raised its full-year earnings guidance in August, defying concerns that the U.S.-China trade war could hurt consumer spending and, more specifically, customer traffic at its stores.
That forecast boost came after the retail giant reported that comparable sales rose 3.4% in the second quarter from a year earlier, fueled by strong foot traffic in its stores and a 34% increase in online sales. Target has now recorded nine consecutive quarters of comparable sales growth — a remarkable run for the retailer which, not so long ago, had been struggling to attract customers back to its stores.
Buoyed by Target’s continued success, investors have sent its shares soaring this year, up about 70%. That rally, in our view, could pick up further steam if the company raises its full-year guidance, or posts another blow-out quarter. The stock closed yesterday's session at $111.96.
Even if the earnings fail to live up to expectations, we still view Target stock as a good buy-and-hold candidate due to many ongoing growth initiatives which could make it a better retailer than its peers.
Good Buy-And-Hold Choice
Target’s strategy to expand its online business, for example, has put it on a sustained growth path. In the second-quarter, about three-quarters of its online comparable sales growth came from its same-day services such as curbside or in-store pickup. The retailer is also remodeling 300 stores this year and has introduced about two dozen private and exclusive brands in key categories like apparel, home decor and beverages.
In September, Target, which refers to its customers as "guests," launched a new private grocery brand, Good & Gather. Grounded in guest research, the flagship brand is offering a wide range of food and beverage products that prioritize taste, quality ingredients and ease. The line will eventually contain more than 2,000 products and will focus on items that don’t contain artificial flavors and sweeteners.
With these advantages, Target stock is also a dependable stock to own during times of economic distress. Income investors who have already bought Target stock are earning higher payouts each year.
The company has been disbursing steadily increasing dividends every year for the last 48 years, while maintaining a fairly conservative payout ratio of 43.24% vs the industry average of 41.95%. Distributing an annual dividend of $2.64 per share, for a yield of 2.33%, its net quarterly income would cover its $0.66 quarterly payout more than twice.
Bottom line
Target's earnings tomorrow are likely to show the retailer is on track to successfully completing its turnaround, helped by expanding foot traffic, the strong consumer economy, and online sales. For these reasons, its shares remain one of our top picks from the retail sector.