by Ian Harvey
August 20, 2020
Target shares were up more than 12% Wednesday after reporting an excellent earnings report before the market opened. TGT is benefiting from the connections it made with consumers and is able to compete effectively.
More could be likely!
TGT shares gained more than 12% Wednesday morning after reporting second-quarter results that came in well above expectations.
TGT said it earned $3.38 per share versus the $1.62 consensus estimate. Same-store sales were a record high of 24.3% versus the 7% expected. Ticket comps rose 18.8% and comp traffic was up 4.6%, marking a turnaround from negative 1.5% in the first quarter.
Online sales were up 195% in the quarter, notably above the 100% growth the analyst was expecting. Same-day services (pick up in store, drive up, and Shipt) were up 273% and contributed 6% of the total comp growth.
Target was given a competitive advantage by being deemed an essential business and allowed to keep its stores open. Where specialty retailers had to rely upon their e-commerce channels to survive, Target was able to take a dual track and widen its moat.
Now, even as most retail is allowed to reopen again, Target is benefiting from the connections it made with consumers and able to compete effectively against Walmart and even Amazon.com.
“Earnings Predictions” Members executed a call options trade on Target on Monday, August 17, 2020, at a cost of $2.50; and the sell value of the option hit $11.55 on Wednesday – a potential profit of 356%.
More profit might be available for those traders that wish to continue to hold as there are still 28 days to go before expiry.
The recommended options trade for “Earnings Predictions” Members.....
** OPTION TRADE: Buy the TGT SEP 18 2020 145.000
CALL at approximately $2.30.
The Recommended Trade…..
“Target Corporation (NYSE:TGT), the operator of general merchandise stores, will report earnings before the market opens. The consensus earnings estimate is $1.56 per share on revenue of $19.30 billion; but the Whisper number is higher at $1.64 per share.
Consensus estimates are for earnings to decline year-over-year by 14.29% with revenue increasing by 4.77%.
This retailer has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 15.03%.
For the last reported quarter, Target came out with earnings of $0.59 per share versus the Consensus Estimate of $0.46 per share, representing a surprise of 28.26%. For the previous quarter, the company was expected to post earnings of $1.66 per share and it actually produced earnings of $1.69 per share, delivering a surprise of 1.81%.
Target stock is racing into the release after breaking out of two months of range-bound trading to all-time highs.
Target shares have surged over 14% in the last month to outpace the broader retail sector. This run includes Friday’s jump that pushed TGT stock to another new high heading into the release of its second quarter fiscal 2020 financial results.
TGT operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items; and apparel, accessories, home décor products, electronics, toys, seasonal offerings, and other merchandise.
Short interest has decreased by 36.8% and overall earnings estimates have been revised higher since the company's last earnings release.
Target has gone all in on e-commerce in order to grow during the Amazon age. This push includes bolstered digital offerings, delivery, curbside pick, and more. And the retailer’s expansion paid off big time during its first coronavirus quarter.
TGT’s first quarter revenue jumped 11.3%, with comparable sales up 10.8% for the three-month period ended on May 2. This growth was spurred by a 141% surge in digital comps. The Minneapolis-based firm also noted that its same-day offerings, which include Order Pick Up, Drive Up, and Shipt, skyrocketed 278% and accounted for roughly “5 percentage points of total Company comparable sales growth.”
In another sign of strength, Target announced in early June that it raised its quarterly dividend by 3% to $0.68 per share. TGT’s dividend yield currently sits at 1.99%, which tops the S&P 500’s average and rival Walmart’s WMT 1.63%.
On top of that, TGT stock has climbed roughly 70% over the last two years to outpace Walmart 47% and Amazon’s 68%. Target hit a brand new intraday high of $137 a share through late afternoon trading on Friday.
Target will likely have positive factors to consider as it looks out to the holiday season. It has widened its customer base significantly over the last six months, and most of those shoppers have given the service high marks for convenience and value. Those wins give it a good shot at maintaining a faster sales growth rate than in years past, even if comps slow from Q1's double-digit rate.
DA Davidson analyst Michael Baker initiated coverage of Target Corporation with a Buy rating and a $152 price target last Friday.
Target built a reputation of offering compelling private label merchandising products across different categories, Baker wrote in the note. During the early days of the COVID-19 pandemic, the company's branded products contributed to accelerating comps.
In fact, comps likely rose above 30% in the second half of April when consumers received their stimulus checks, the analyst wrote. Looking forward, Target's exposure to basic products, outdoor living, and consumer electronics should help drive comps.
Meanwhile, Wells Fargo analyst Edward Kelly affirmed his overweight rating on Target and lifted his share-price target to $155 from $135.
He has "improving confidence in the company's ability to capitalize on current dislocations," he wrote.
Kelly maintains that "strong covid-related demand, [government] stimulus, share gains, and attractive company-specific positioning should drive comparable sales and earnings above consensus in Target.”
He likes Target, maintaining his equal-weight rating.”
Looking ahead, Cornell said Target is preparing for a “hard-fought election and a holiday that’s going to be unprecedented.” With COVID-19-related uncertainty in mind, the company has suspended guidance.
“As we reflect on an extraordinary second quarter, we know there’s a lot of work ahead,” he said.
The company gained around $5 billion worth of market share in the first half of 2020, according to BofA Securities Robert Ohmes. He maintains a Buy rating on Target's stock with a $150 price target.
Target's impressive growth in the second quarter looks to be sustainable as the company takes advantage of weaker retailers, especially Kohl's Corporation (NYSE: KSS) and Macy's Inc (NYSE: M), Matthew McClintock, senior consumer research analyst at Raymond James, said.
Target has been quietly taking market share from weaker retailers over the past three years but the COVID-19 pandemic accelerated the gains.
These underperforming retailers are unlikely to be around in the future or will exist in a much smaller form, the analyst said. This implies a "substantial" opportunity for further market share gains. Apparel alone represents a $100 billion opportunity from shoppers that will have "nowhere else to go" but Target.
Raymond James rates Target shares strong buy.
“The basic point is that Target has developed a proposition that is cohesive which means its guests will happily shop multiple categories allowing Target to maximize its share of wallet,” wrote Neil Saunders, managing director at GlobalData Retail.
“This has always been beneficial, but it came into its own at a time when consumers have been reducing the number of shopping excursions that they make. Target’s position also stands in contrast to some of its competitors, such as Walmart, which is far less able to get people to shop across multiple departments.”
Moody’s analyst Charlie O’Shea was pleased with the earnings results. “Target’s Q2 performance obliterated the bullseye, with every line item vastly exceeding our expectations, resulting in first half performance actually improving from 2019 despite Q1’s very rocky start.”
Target is facing considerable uncertainty regarding back to school shopping demand. Cornell told reporters that 66% of U.S. students are starting out the school year remotely. “Sitting here today, I don’t know if 30 days from now that number is going to be 6% or 96%,” he said. “So we’ve got to be flexible, we’ve got to be adaptable.”
Yet investors have sent its stock up 12.7% to a record on August 19.
Where Is Target Shares Headed?
Is It Too Late To Get In On The Action?
Will Target Shares Continue To Rise?
Will We Recommend Another Target Options Trade?
What Other Trades Are We Anticipating?
Do You Wish To Be Part Of This Action?
Join us here at Stock Options Made Easy, and find out our trades moving forward.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!