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Will Higher Revenues Drive Target's (TGT) Q3 Earnings?

Zacks Equity Research

Target Corporation TGT is scheduled to release third-quarter fiscal 2019 results on Nov 20. We note that in the trailing four quarters, the company’s bottom-line has outperformed the Zacks Consensus Estimate by 4.6% on average. In the last reported quarter, the company delivered a positive earnings surprise of 13%.

After registering bottom-line improvement of 23.9% in the second quarter, Target is likely to deliver year-over-year growth in the third quarter as well. The Zacks Consensus Estimate for the quarter under review is pegged at $1.18, indicating an improvement of 8.3% from the year-ago quarter. We note that the Zacks Consensus Estimate has increased by a penny in the last 30 days.

The Zacks Consensus Estimate for revenues is pegged at $18,467 million, suggesting growth of 3.6% from the prior-year period.

Key Factors to Note

Target’s focus on new brands, enhancing omni-channel capacities, remodeling stores and expanding same-day delivery options has been driving the top line. Robust traffic, favorable store comps and a surge in comparable digital sales have been contributing to results.

The company has been undertaking rationalization of supply chain with technology and process improvements. Notably, the company’s digitization initiative has been paying off quite well. Comparable digital channel sales surged 34% in the second quarter, and added 1.8 percentage points to comparable sales.

In the last earnings call, management guided comparable sales increase of 3.4% for third-quarter fiscal 2019. The company projected adjusted earnings between $1.04 and $1.24 per share compared with $1.09 reported in the year-ago period.

However, Target projected flat to a slight increase in third-quarter operating margin. The projection takes into account expected gross margin expansion, offset by SG&A pressure. Management has also highlighted the absence of supply chain and inventory-related pressure this year.

Target Corporation Price, Consensus and EPS Surprise

 

Target Corporation Price, Consensus and EPS Surprise
Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

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What’s the Probability of an Earnings Beat?

Our proven model does not conclusively predict an earnings beat for Target this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Target has a Zacks Rank #2 but an Earnings ESP of -0.85%.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.

Dollar General DG has an Earnings ESP of +2.34% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies LOW has an Earnings ESP of +1.62% and a Zacks Rank #2.

Ross Stores ROST has an Earnings ESP of +4.03% and a Zacks Rank #2.

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Target Corporation (TGT) : Free Stock Analysis Report
 
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Ross Stores, Inc. (ROST) : Free Stock Analysis Report
 
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