What’s happening: Target Corporation is scheduled to report its fourth-quarter results before the opening bell on Tuesday, March 3. Shares have been under pressure after the company preannounced disappointing same-store sales growth for the quarter.
What happened: Target’s shares have taken a hit over the last weeks, after the retailer preannounced weak comp sales in the all-important fourth quarter. The company reported comp growth of 1.4% for the key shopping period, missing its own guidance of 3%-4% growth and representing the lowest levels since the first quarter of 2018.
Despite this, Wall Street analysts have mentioned several reasons to be optimistic, saying that the current share price may represent an attractive entry point for investors.
- The consensus revenue estimate stands at $23.45 billion, representing a 2% year-over-year growth.
- The estimate for earnings is $1.65 per share, with 7.8% growth from the same quarter in the previous year.
Why it matters: Amid investor concerns, analysts have cited several reasons for optimism. Target had reported robust sales and profits for most of 2019, having witnessed the strongest customer traffic growth in more than a decade.
No doubt, the fourth-quarter same-store sales were disappointing, especially versus the 5.7% growth delivered in the fourth quarter of 2018. Despite the tepid comp growth, the retailer did not lower its earnings projections for the quarter. This indicates an improvement in profitability. The margin expansion, if achieved, comes at a time when other retailers have cited high pressure on profitability.
Moreover, Target’s comparable digital sales surged 19% during the shopping season, benefitting from same-day fulfillment services. The retailer was able to offer customers same-day in-store pickup, drive-up and same-day delivery due to its acquisition of Shipt.
Archrival Walmart also experienced weak holiday sales, so it’s not a company-specific phenomenon. Walmart also missed earnings estimates when it reported results on February 18. If Target can meet earnings expectations, investor sentiment may turn sufficiently positive to boost shares.
The retailer has also been opening stores in smaller locations and redesigning its stores. Target is also benefiting from attracting young consumers and offering them trendy and affordable home décor, fashion and other items.
How shares have performed so far: Target’s shares reached a record high of $130.24 in 2019. The stock has lost almost 20% year to date, having declined more than 4% over the past five trading days. The stock could have been a victim of the broader selloff in the market due to coronavirus fears. Analysts largely consider Target as a good buy for the long term, given that its dividend typically exceeds that of its competitors. Target is paying an annualized dividend at a 2.50% yield, easily surpassing Walmart’s 1.92% and Costco’s 0.89% yield.
What to watch: Target’s shares are prone to strong moves following its earnings reports. This may be the case of the eighth-largest retailer in the US meeting earnings expectations for the quarter. Investors also await comments from management around the impact of coronavirus on its business as well as its first official 2020 guidance.