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Target (TGT) Down 9.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Target (TGT). Shares have lost about 9.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Target due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Target Q3 Earnings Miss Estimates, Revenues Beat, Rise Y/Y

Target Corporation posted a negative earnings surprise in the third quarter of fiscal 2018, following a beat in the preceding. However, top line marginally came ahead of the Zacks Consensus Estimate. Moreover, both revenues and earnings continue to improve year over year. Management also reiterated fiscal 2018 earnings projection.

Let's Delve Deeper

This operator of general merchandise stores reported adjusted earnings of $1.09 per share that fell short of the Zacks Consensus Estimate by a couple of cents but improved 20.2% from the prior-year period. This year-over-year growth can be attributable to higher sales and fall in interest expense as well as share repurchase activity that to an extent offset rise in cost of sales and higher SG&A expenses. Target maintained its fiscal 2018 adjusted earnings guidance of $5.30-$5.50 per share.

The company generated total revenue of $17,821 million that slightly surpassed the Zacks Consensus Estimate of $17,814 million, thus marking the seventh straight beat. Top line increased 5.6% from the year-ago quarter. Sales rose 5.7% to $17,590 million, while other revenue climbed 1.6% to $231 million.

Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options. Target has undertaken rationalization of supply chain with same-day delivery of in-store purchases along with technology and process improvements. The company made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service Shipt to provide same-day delivery of groceries, essentials, home, electronics as well as other products.

Meanwhile, comparable sales for the quarter increased 5.1% compared with 0.9% growth witnessed in the year-ago period. The number of transactions rose 5.3%, while the average transaction amount fell 0.2%. Comparable digital channel sales surged 49% and added 1.9 percentage points to comparable sales. Management now anticipates comparable sales growth of approximately 5% in the fourth quarter.

Gross margin contracted 90 basis points to 28.7% due to increased supply chain costs on account of digital fulfillment costs, partly mitigated by the benefit of merchandising strategies. Operating margin shriveled 40 basis points to 4.6%.

Target's debit card penetration contracted 10 basis points to 12.9%, while credit card penetration fell 60 basis points to 10.8%. Total REDcard penetration declined to 23.7% from 24.4% in the year-ago quarter.

Other Financial Details

During the quarter, Target repurchased shares worth $526 million and paid dividends of $337 million. The company still had about $1.8 billion remaining under its $5 billion share buyback program. In the quarter, the company made capital investments of $1,017 million. The company ended the quarter with cash and cash equivalents of $825 million, long-term debt and other borrowings of $10,104 million and shareholders' investment of $11,080 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Target has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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