Is Target Stock (TGT) Really This Good?

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Before U.S. markets opened on Wednesday, Target Corp. (NYSE: TGT) reported results that pushed the stock up by nearly 14% in the day’s premarket trading session. One hesitates to think about how different it could have been.

Estimates vs. reality

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Analysts’ consensus estimates called for earnings per share of $1.48 and revenue of $25.24 billion. Target reported EPS of $2.10 and revenue of $25.00 billion.

A mixed result at best until we compare the estimates to the results of the company’s year-ago third quarter, when EPS came in at $1.54, and revenue totaled $26.52 billion. The third-quarter 2024 EPS estimate was 3.8% below the year-ago actual, and the revenue estimate was 4.8% lower than last year’s reported total.

Third-quarter revenue fell to its lowest level in 10 consecutive quarters. At the same time, adjusted EPS is at its highest level since the first quarter of fiscal 2023.

Not much was expected, and that’s what Target delivered.

What the CEO said

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Describing the quarter as “a very challenging external environment,” CEO Brian Cornell said the company’s startling earnings performance “benefited from our team’s commitment to efficiency and disciplined inventory management.”

Inventory management has been a problem for Target for more than a year. The company has been clearing its inventory, but that comes at a cost. And that cost is lower revenue.

Even so, operating income rose nearly 29% to $1.3 billion, the result of a higher gross margin rate. Discounts

Presumably, Cornell will have more to say about Target’s results on Wednesday’s conference call.


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The company’s fiscal fourth-quarter guidance statement was succinct:

For the fourth quarter, the Company expects comparable sales in a wide range around a mid-single digit decline, and GAAP and Adjusted EPS of $1.90 to $2.60.

At the end of the previous quarter, the company lowered its full-year EPS guidance from $7.75 to $8.75 to a new range of $7 to $8. The current consensus estimate is just above the midpoint of that range. The midpoint of Target’s fourth-quarter EPS guidance is a penny higher than the consensus estimate of $2.24.

Some observations

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Target recently closed its ninth store, this one in Manhattan, after closing two stores in Seattle, three in Portland, Oregon, and three in the San Francisco Bay area.

Same-store sales fell 4.9% year over year and transaction counts were down 4.1%. In-store sales fell 4.6% and online sales were down 6%.

Operating cash flow for the first nine months of the 2024 fiscal year totaled $5.33 billion, up from $552 million for the first nine months of 2023. The largest change was to the company’s inventory level: negative $3.22 billion last year compared to negative $1.23 billion this year. Target also reported a $1 billion change in accounts payable and a similar change in accrued and other liabilities. The rest came from $800 million in higher net income. Clearing out inventory really does help.

About an hour before the opening bell, Target stock traded up nearly 14% at $125.88 in a 52-week range of $102.93 to $181.70. The 12-month consensus price target on the stock is $143.30. Target’s annual dividend is $4.40 per share, for a yield of 3.97%.

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