Target (NYSE:TGT) released a strong third quarter earnings report on November 19th. The report beat expectations and share prices increased. Many interpreted this as a sign of Target’s recovery from last year’s data breach.
In the Q3 report, Target highlighted:
- Adjusted EPS of $0.54, beating the analyst consensus of $0.40-$0.50 but posting a 2.9% year-over-year decrease from $0.56.
- GAAP EPS of $0.55; a 2.7% year-over-year increase from $0.54.
- Total sales of $17.732 million; a 2.8% year-over-year increase from $17.258 million.
- For Q4 2014, Target is predicting an Adjusted EPS of $1.13 to $1.23.
Additionally, many analysts are looking forward to seeing how Target fares during the holiday shopping season. Target has already reported strong Thanksgiving Day traffic. In a move that many find controversial, Target started Black Friday early by opening stores at 6 p.m. on Thanksgiving Day. However it was the online sales that made a difference, with a reported 40% increase of Thanksgiving Day online sales from last year. Target is also expecting big gains today for Cyber Monday, which they have turned into “Cyber Week” with discounts on thousands of items through December 6th. Brian Cornell, Target Chairman and CEO, noted that new free shipping services are attributing to the successful holiday shopping season.
Some were encouraged by the promising Q3 report, such as Musings of a Banker; a blogger for Seeking Alpha. On November 25th, the author highlighted the “better-than-expected earnings” and a high level of “consumer sentiment” as Americans feel “more secure about their financial status and the overall buying climate.” The author concluded that that “TGT appears undervalued with a fair market value price target of approximately $81 with upside potential of approximately 13%. The stock still deserves attention given rising consumer confidence and an improving economic climate.”
Musings of a Banker blogger has a 71% overall success rate recommending stocks with an average return of +2.1% per recommendation.
Separately on November 28th, analyst Simeon Gutman of Morgan Stanley maintained an Underweight rating for Target and raised the price target to $66 from $61. Although Target released a positive Q3 report, the analyst is not convinced that the stock is a strong buy. Gutman noted, “US EBIT dollars were down 5% as margins contracted 40 bps and the EBIT loss in Canada was north of $200 million. Gross margins were in-line with guidance but were still down 80 bps on a two-year stack, consistent with Q2.” Gutman also lacks confidence in the Canadian branches of Target, as he doubts they will become profitable in the near future.
Gutman has a 78% overall success rate with an average return of +8.0% per recommendation.
Analyst Charles Grom of Sterne Agee separately rated the stock on November 28th and maintained a Neutral rating, raising the price target from $51 to $58. Grom applauded the Q3 report noting “The beat was of high quality—coming entirely at the EBIT level with upside from better revenue (+0.01) gross margins (+0.01), SG&A (+0.06), and D&A (+0.02).” Grom attributed the successful Q3 report to the Target’s new leadership team. However, Grom was wary of the stock’s rich multiple, which is almost 19 times their FY 2015 Earnings per Share of $3.85.
Grom has a 53% overall success rate recommending stocks with an average return of +0.6% per recommendation.
Target received mixed ratings amidst the Q3 report, but how will the stock be influenced by sales from Black Friday and Cyber Monday?
The top analyst consensus for Target is Hold.