Is Target’s share price set for another retail bounce?

Target’s [TGT] share price got off to a rough start at the beginning of 2020, gradually falling throughout January and February before reaching its lowest close of 2020 on 25 March of $91.04 — down 28.9% year to date. Although Target’s share price has recovered since then, will the company’s third-quarter earnings, due 18 November, carry the stock even higher?

Although Target’s share price showed signs of recovery in the spring, closing at $125.20 on 18 May, it was still down 2.35% year-to-date. It wasn’t until mid-summer that Target’s share price began trading above its 2020 opening price of $128.74 when, on 4 August, the stock closed at $130.45.

Since then, however, Target’s share price has gone on to soar to new heights, without falling below its 2020 opening price. On 13 October, Target’s share price reached an all-time high of $166.68 during intraday trading, before closing at $165.64 — marking the stock’s best-ever close and a growth of 29.19% year to date.

How has Target been performing?

When Target announced its second-quarter results on 19 August, it posted earnings of $3.38 per share, beating the Zacks consensus estimate of $1.64 per share by an impressive 106.10%. Not only did this mark the fourth consecutive estimate-beating quarter, but the results also signified a growth of 85.71% year on year.

Revenues grew 24.75% year on year from $18.42bn to $22.98bn, beating the Zacks estimate by 13.54%. Of the last four quarters, this was the third time that Target beat revenue estimates.

“Our second-quarter comparable sales growth of 24.3% is the strongest we have ever reported, which is a true testament to the resilience of our team and the durability of our business model,” said chairman and CEO Brian Cornell in a statement released alongside the results.

“Our second-quarter comparable sales growth of 24.3% is the strongest we have ever reported, which is a true testament to the resilience of our team and the durability of our business model” - Target CEO Brian Cornell

Target’s share price grew 12.65% on the day it released its second-quarter earnings, closing at $154.22. At the time, this marked a record high for the stock.

Looking ahead to its third-quarter results, Target is expected to announce earnings of $1.53, which would mark a growth of 12.5% from 2019’s third-quarter earnings. On the other hand, revenues are expected to total $20.68bn, up 10.77% from the prior-year quarter.

For the full-year, Wall Street analysts are projecting earnings of $7.18 per share and revenues of $87.94bn. If correct, these figures would represent respective growths of 12.36% and 12.58% year on year.

Is Target a Buy?

“This year, the COVID-19 pandemic lit a fire under Target's online and brick-and-mortar stores. In the first quarter, its total comps jumped 10.8% and its digital comps surged 141%. In the second quarter, its total comps rose 24.3% as its digital comps soared 195%,” Leo Sun, wrote in The Motley Fool.

Meanwhile, Jefferies analyst Stephanie Wissink initiated coverage of Target’s share price in October with a Hold rating and an increased price target of $180, up from $169, reports The Fly. This suggests a potential 3.66% upside on Target’s share price as of 17 November’s close.

“This year, the COVID-19 pandemic lit a fire under Target's online and brick-and-mortar stores. In the first quarter, its total comps jumped 10.8% and its digital comps surged 141%. In the second quarter, its total comps rose 24.3% as its digital comps soared 195%” - Leo Sun

Among 28 analysts polled by CNN Money, the consensus is to Buy the stock. This comes from a majority of 15, while two rate the stock as Outperform, nine rate it a Hold and two give it a Sell rating. Meanwhile, Zacks has a consensus Buy rating on Target’s stock.

Among 25 analysts offering 12-month forecasts on CNN Money, the median target for Target’s share price is $175, with a high estimate of $193 and a low of $127. The median estimate would represent a 7.34% increase on Target’s share price as of 17 November’s close.

“Target's scale and forward-thinking strategies should help it outperform the S&P 500,” concludes Sun. “It also generates nearly all of its revenue in the US — which could partly insulate it from the ongoing US-China trade war and other geopolitical risks. In other words, Target should remain a great stock to ‘buy and forget’ for long-term investors.”