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Target (NYSE:TGT) has been a favorite of mine for awhile now and after the latest rally, it’s clear why. TGT stock burst to new all-time highs on better-than-expected quarterly results. While some investors may think that’s the end of the move, there are multiple reasons that is not (and should not) be the case.TGT) dog in a target store" width="300" height="169">
Source: Robert Gregory Griffeth / Shutterstock.com
While extended in the short-term, the technicals for Target look very bullish. Add to it the fundamental positives we see and this one can certainly continue higher.
In the stock market, it’s a world of the haves and the have-nots. This observation is even more true in the retail sector. The have-nots are being decimated left and right. However, the plays that are working are seeing their stocks rise to new all-time highs.
Luckily, Target is one of those that are working. Let’s dig deeper.
Breaking Down Target Stock
On Aug. 19, Target blew the doors off with its fiscal second-quarter results. Earnings of $3.38 per share crushed expectations of $1.65 per share. Revenue of $22.98 billion grew almost 25% year-over-year — incredible for a big-box retailer — and beat estimates by almost $3 billion.
What is this, a tech company?
Even though TGT stock was sitting at new all-time highs ahead of the print, investors couldn’t do anything but bid it higher on the these results. It’s clear that Target is a destination for consumers. Given how well it has done in the first half of the year, investors have to be excited about what the second half could hold.
Comp-store sales grew 24.3% year-over-year, coming in at a new record and way ahead of estimates looking for 8.6% growth. Even though transactions grew just 4.6% — a modest bump in shoppers — transaction size soared 18.8%. Digital sales were up 195%, while operating margins came in at 10% and well ahead of estimates for 5.7%.
The downside here is that other retailers that did well in the quarter have said they don’t expect a repeat performance in the third quarter. That being as the economy still struggles and as various stimulus efforts fade from last quarter.
Will that be enough to weigh down Target? Perhaps it will be. But back-to-school shopping, online sales, holiday purchases, and general strength in the Target brand should help keep the stock afloat.
On the conference call, CEO Brian Cornell said that, “August comps are off to a very solid start with low to mid teen growth at this point in the month, and it’s been broad based.” Let’s see if that momentum can continue.
Trading TGT Stock
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Source: Chart courtesy of StockCharts.com
According to management, Q2 momentum is continuing into Q3. Now we’re looking for the same thing in the stock price.
I love the way that TGT stock pushed through resistance in July, then broke out over the prior all-time highs near $128. This high was actually from late 2019, showing just how long this move has been building up.
The stock did not make it easy for investors, rallying to all-time highs and up to the 138.2% extension ahead of earnings. The gains held while shares remained technically overbought, according to the RSI reading (blue circle at the top of the chart).
With the post-earnings move, it’s very constructive seeing this high-and-tight price action. Shares are retaining the gains as TGT stock consolidates above the 161.8% extension.
If Target can rotate over the current high at $156.10, it puts the two-times range extension in play near $167. If TGT stock stalls or dips, look for the 10-day moving average to act as support. Should shares continue lower, a gap-fill down toward the 138.2% extension at $143 is possible.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
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