Yahoo Finance Target Corporation (TGT) Is a Seesaw for Anxious Investors
Target Corporation ( TGT) is in a funk heading into its fourth-quarter earnings report, and it's not of the garden variety. Between mid-2015 and today, TGT stock has declined a little more than 20 percent -- but rather than a slow bleed, shareholders have been subjected to a nauseous path that has included numerous double-digit moves in both directions.
That's fun for traders, but murder for investors.
BTIG analyst John Zolidis perhaps best summed up this dynamic in Target stock in a Jan. 18 note after TGT rolled out disappointing holiday-season sales. BTIG cut its price target for TGT stock from $85 to $77: "We are taking a much more conservative view on future results," he says in the note, "And now believe it's reasonable to start with the assumption that Target may never generate a positive annual comp again, or at least not before the e-commerce channel matures."
[See: 7 Dividend Stocks to Benefit From Trump Tax Changes.]
In fact, Zolidis says that Target may never be more than a long-term hold for investors, which as he says, "is a much less compelling investment case."
That said, Target stock is in a trench heading into its earnings announcement, due out Tuesday before markets open. So will TGT at least have what it takes to swing shares back north -- and ultimately, can Target finally start to reverse its broader downtrend?
Target by the numbers. For the quarter, earnings are expected to decline a penny per share to $1.51 on a revenue dip of just more than 4 percent. There's nothing new in this -- sales declines have been Target's main bugaboo over the past year. Last May, Target reported first-quarter revenues that were down 5.4 percent and guided a weak second quarter. In August, Target lived up to expectations, shedding 7.2 percent from its top line and lowered full-year guidance. Revenues dropped 7.4 percent in the third quarter, but Target still hiked its fourth-quarter comps and full-year earnings outlook.
Target threw everyone off its scent again, though, with its January holiday sales report and subsequently lowered fourth-quarter earnings.
Target does tend to beat profit estimates a lot more than it misses, and the company still is projected to post all-time high annual adjusted earnings. What likely will drive TGT stock is how things look in the fourth quarter and beyond on the revenue end -- Target's weak link.
Target stock moving forward. A pair of bullet points from Target's holiday sales announcement speaks volumes about one of the retailer's biggest battles right now -- finding the right balance between online and its brick-and-mortar operations:
-- Comparable sales declined more than 3 percent, partially offset by digital sales growth of more than 30 percent.
-- Digital transaction growth of more than 30 percent was offset by a 1.7 percent decline in comparable store transactions.
Target is throwing money at making its online presence competitive with the likes of Wal-Mart Stores ( WMT) and, of course, Amazon.com ( AMZN). But that, along with a competitive promotional environment, created a double whammy that cramped fourth-quarter margins and earnings, and could suppress earnings in quarters to come.
[See: 6 Things to Know About Mark Zuckerberg's Manifesto.]
Meanwhile, Target also is trying to work on its supply chain and make other improvements in-store to bolster foot traffic. Though there have been setbacks, such as last summer, when mobile payment service CurrentC -- a competitor to Apple's ( AAPL) Apple Pay and Alphabet's ( GOOGL, GOOG) Google Wallet backed by Wal-Mart, Target and other major retailers -- shut down a beta test, effectively killing the service.
If you are a believer in the Target turnaround story, however, TGT stock is making one heck of a fundamental case.
For one, revenues are supposed to rebound next year with a modest 1.4 percent improvement. More importantly, earnings will continue to increase by about 6 percent to $5.35 per share -- a better clip than what analysts expect out of Wal-Mart next year. And TGT yields 3.6 percent while trading at 12.4 times earnings, versus a 2.8 percent yield on WMT, which trades at a 16x multiple.
Target appears to be positioned well for at least a short-term turnaround, and if it can at least stabilize its revenues, it's priced right to draw in value buyers.
More earnings in focus
Lowe's Companies (LOW), Wednesday. Home Depot ( HD) continued pushing into new all-time highs last week on an excellent fourth-quarter earnings report, with management saying "home price appreciation, housing turnover, household formation and the aging housing stock in the U.S. continue to support growth in our business." That bodes well for Lowe's, which already is expecting a big quarter in which revenues should grow 16.2 percent to $15.4 billion on 34 percent earnings growth to 79 cents per share. Moreover, unusually warm February temperatures could translate into some optimism for Lowe's Q1 2017 forecasts.
Costco Wholesale Corp. (COST), Thursday. Costco will look to continue reaching new heights itself Thursday afternoon, when the big-box retailer reports fiscal second-quarter financials. Costco is expecting decent top-line growth of 5.9 percent to $29.8 billion, filtering down to 9.7 percent earnings growth to $1.36 per share. Just last week, Oppenheimer raised its full-year earnings estimates for COST to $5.98 per share, up from $5.87 and better than the consensus mark of $5.91. Costco shares have climbed more than 8 percent in the past month, ignoring a Jefferies warning that Costco would be one of the hardest-hit companies if a proposed border-adjustment tax proposed by Republicans were to materialize.
This week's earnings calendar
Monday. Hertz Global Holdings ( HTZ), Perrigo Co. ( PRGO), Priceline Group ( PCLN), Workday ( WDAY)
Tuesday. 3D Systems Corp. ( DDD), AutoZone ( AZO), Domino's Pizza ( DPZ), Etsy ( ETSY), Seadrill ( SDRL) Acadia Pharmaceuticals ( ACAD), Ambarella ( AMBA), Salesforce.com ( CRM), Taser International ( TASR), Weight Watchers International ( WTW)
Wednesday. American Eagle Outfitters ( AEO), Best Buy Co. ( BBY), Crocs ( CROX), Dollar Tree ( DLTR), Box ( BOX), Monster Beverage Corp. ( MNST), Shake Shack ( SHAK)
[See: 11 Ways to Buy Bank Stocks.]
Thursday. Abercrombie & Fitch Co. ( ANF), Anheuser-Busch InBev NV ( BUD), Barnes & Noble ( BKS), JD.com ( JD), Kroger Co. ( KR), Noodles & Co. ( NDLS), Sears Holdings Corp. ( SHLD), Autodesk ( ADSK), Wingstop ( WING)
Friday. Staples ( SPLS)
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