Target (TGT) 3rd Quarter Earnings: What to Expect

Big box retail is not dead, as evidenced by the strong earnings results and forecasts just delivered from Walmart (WMT). Will the numbers affirm this believe when Target (TGT) reports third quarter fiscal 2018 earnings results before the opening bell Tuesday?

As Walmart demonstrated with its impressive bottom line beat and raising its full-year same-store sales forecast in the U.S., not all retail is suffering at the hands of Amazon (AMZN). Target, which has seen its share price rise 22% this year, crushing the S&P 500’s 2% climb, will attempt to keep up the pace. Target’s strong stock performance has been driven by its e-commerce investments, including its last year’s acquisition of grocery delivery startup Shipt. Will Tuesday’s results affirm investors’ confidence in the stock price?

For the three months that ended October, Wall Street expects the Minnesota-based retailer to earn $1.12 per share on revenue of $17.8 billion. This compares to the year-ago quarter when earnings came to 91 cents per share on revenue of $16.67 billion. For the full year that ends in January, earnings are projected to rise 15% to $5.41 per share, while revenue of $75.18 billion will rise 4.6% year over year.

Target’s recent performance, as that of Walmart, has benefited from multiple trends, including the fact that U.S. unemployment is at its lowest in almost two decades, while employee wages are improving. On Tuesday analysts not only will monitor Target’s gross margin to gauge the underlying strength of the business, but also dissect its online sales trends to assess the company’s ability to fight off Amazon.

In that vein, the company has pushed deeper not only into e-commerce, but also logistics and delivery. The management sees initiatives such as delivery, in-store pick-up and low shipping fees, as means to retain and attract more customers. So far these bets have paid off. In the second quarter, Target deliver overall same-store sales growth, including online sales, of 6.5%. This was the company’s strongest same-store sales growth in more than ten years.

Just as impressive, the company’s second quarter online revenue comps surged more than 40%, marking a growth acceleration for 8 percentage points from the 32% rise posted in the year-ago quarter. Beyond the top and bottom-line numbers, Wall Street will look to see if Target can build on these metrics. From a valuation perspective, Target stock still looks attractive, trading at just 15 times fiscal 2018 estimates, which represents a discount compared to the S&P 500 index.

In other words, investor patience despite the year-to-date outperformance in the stock, there is still room for growth. And the company’s guidance for the holiday quarter, particularly compared to the confidence of Walmart, will determine what Target stock does in the near the term.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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