Target Q4 Earnings Preview: What's Next For TGT Stock Amid Market Selloff?

Target (NYSE:TGT) is set to report its fourth quarter 2019 financial results before the market opens on Tuesday, March 3. The retail giant has already reported dispositioning holiday-period sales and has tumbled as part of the coronavirus-based selloff over the last week.

What’s Going On?

The week of February 24 has been a brutal, with the Dow, the S&P 500, and the Nasdaq having tumbled into a correction at breakneck speed. Friday’s downturn follows a Thursday that marked the Dow’s largest one-day collapse in history, and helps drag stocks down toward their worst week since the financial crisis.

The coronavirus continues to spread outside of China and the CDC has called on U.S. businesses, schools, and people to prepare. The Chinese economy’s standstill has already forced Apple (NASDAQ:AAPL) , Microsoft (NASDAQ:MSFT) , and others to lower their guidance and if people in the world’s second-largest economy aren’t able to return to work soon, many fear it will dent growth and profits everywhere in the market.

Retailers could also be hit hard because of supply chain shocks and the possibility of people eventually staying at home to combat coronavirus fears. All of this will clearly put a ton of pressure on Target.

TGT at a Glance

Target in mid-January reported disappointing holiday sales. The company’s comparable sales climbed just 1.4% during the key November and December shopping period, which came up well short of its own projections for 3% to 4% comps growth in Q4. It is worth noting that this expansion came on top of the year-ago period’s 5.7% comps growth.

Still, it marked a worrying sign since consumer spending climbed during the holidays as a whole. Rival Walmart (NYSE:WMT) also posted sluggish holiday sales, even as both retail giants have expanded their e-commerce and delivery offerings to fight back against Amazon (NASDAQ:AMZN) .

TGT executives did maintain their earnings guidance and pointed out that it remained on track to post its 11^th straight period of comps growth. Plus, comparable digital sales jumped 19% during the holidays, driven by same-day fulfillment services such as Order Pick Up, Drive Up, and Shipt.

Other Fundamentals

The company’s digital and delivery efforts have helped drive growth, with same-day fulfillment services up 50% in the November/December period. This expansion drove roughly three-quarters of TGT’s overall digital sales growth.

Target, which operates over 1,800 stores, has also regained strength through its commitment to store redesigns and opening new smaller locations in college towns and urban areas. On top of that, Target has been able to keep and attract more young consumers, unlike department stores such as Macy’s (NYSE:M) , through trendy lines and affordable furniture, home décor, fashion, and more.

Looking back, Target authorized in September a new $5 billion share repurchase program. Target also currently pays an annualized dividend of $2.64 per share, for a 2.50% yield. This blows away the recently beaten-down 10-year U.S. Treasury’s 1.16%, Walmart’s 1.92%, and Costco’s (NASDAQ:COST) 0.89%.

TGT stock has also easily outpaced WMT and its industry over the last three years, up 78% compared to Walmart’s 51%. Target shares soared last August after its Q2 results wowed Wall Street, but it has cooled down. TGT was trading at roughly $102 per share through morning trading Friday, which puts it about 22% off its 52-week highs.

Outlook

Our current Zacks estimates call for TGT’s Q4 revenue to pop 2.2% to $23.47 billion, which would fall short of Q3’s 4.7% top-line expansion. Meanwhile, our Key Company Metrics call for Target’s comps to pop 3.2%. As one might assume, this would come in below Q3’s 4.5%.

Target’s full-year fiscal 2019 sales are projected to jump roughly 3.7%, with 2020 expected to come in 3.6% higher. Both of these estimates appear strong compared to 2018’s 3.6% growth and 2017’s 3.5%.

At the bottom end of the income statement, TGT’s adjusted Q4 earnings are projected to pop 8.5% to $1.66 a share, with fiscal 2019’s figure expected to surge 17.8%. Peeking a bit further down the road, TGT’s fiscal 2020 EPS figure is projected to climb 7.7% higher.

Bottom Line

Target currently holds a Zacks Rank #3 (Hold) heading into its Q4 release and it has easily topped our earnings estimates in the trialing three periods. TGT also earns “B” grades for Value and Growth in our Style Scores system.

TGT appears to be a solid long-term buy in the retail space and its dividend tops industry rivals. Still, the prudent choice for those high on Target is likely to wait until after earnings to decide what to do in the short-term given all the virus fears. But when things start to turn around, Target might be worth buying on the dip.

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