Target Shares Soar After Earnings Report. Is it a Buy?
Target stock soared higher after the company’s earnings report early Wednesday morning. Same-store sales were the biggest highlight of the call, with the number increasing by 2%, above the 1.1% forecast. Target had been on a one year long losing streak amidst public relations issues they faced and a more cautious customer, but their increase in same store revenue this quarter helped end that streak.
Retail were also happy to learn that discretionary items, especially apparel, saw an uptick in demand. This was taken as a sign that consumers are starting to spend on non-essential items again. However this could also be interpreted as consumers shopping for apparel at Target because it offers “lower” costs. Either way, this was the fourth quarter in a row that Target sees an uptick in discretionary spending, so they’re reaping the benefits of the economic environment.
In terms of profitability, Target’s year over year EPS grew by 42% to $2.57 per share, far above the anticipated $2.18. Target sees the growth momentum continuing into next year, raising their earnings per share range to $9.00-$9.70 versus the prior $8.60-$9.60.
So, is the stock a buy?
Despite the earnings jump, Target’s stock is till nearly 50% below its all time highs. The public relations issues they ran into had a severe short term impact on the image around their stock, but Wall Street won’t ignore an opportunity when it sees one. Trading at a price to earnings ratio of only 16x, the company is on the cheaper end of the attractive 15-25 range. Comparing that to competitors like Walmart, which is trading at a P/E of 38x, Target is far cheaper.
Earnings are expected to grow, which means their P/E will only get more attractive. Investors will likely buy into this stock in the coming quarters at these levels, patiently waiting and collecting a dividend until the stock comes around.