Target (NYSE:TGT) TGT shares have tracked the S&P (NYSE:SPY) 500’s climb since the market’s March 23 lows, even though the retail giant pulled its full-year guidance in late March and suspended its share repurchase program amid all of the coronavirus uncertainty.
Target is set to report its first quarter fiscal 2020 financial results before the market opens on Wednesday, May 20. So let’s look at what to expect from the retail giant to see if investors might still want to consider buying TGT stock.
Target & the Pandemic
Target on March 25 withdrew its fiscal 2020 sales and earnings guidance, and suspended its share repurchase activity. On April 23, TGT provided more business updates to help give Wall Street a better idea of the coronavirus impact.
The Minneapolis-based retailer pointed out that its costs have climbed during the coronavirus, which will reduce its Q1 profitability. TGT has boosted pay and benefits for its team members.
Shoppers have also gravitated more toward lower-margin, consumer-staple style categories and shifted to e-commerce. Target said that these factors, alongside write-downs associated with reducing its inventories of apparel and accessories are expected to lower its Q1 operating margin by more than 5%.
Target also said in its April 23 release that its total comparable sales were up 7% quarter-to-date, which reflected a “slight decline in stores” and more than 100% growth in digital channels. The company’s April sales further highlight the stay-at-home push. TGT’s month-to-date comps were up 5% at the time, with a mid-teens decline in-stores and over a 275% jump in digital comps.
Investors should note that TGT’s fiscal 2019 year ended on February 1, and its Q1 FY19 closed on May 4. Therefore, Target’s upcoming results will capture far more of the coronavirus impact than many other firms on Wall Street.
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Q1 & 2020 Outlook
Moving on, our current Zacks estimates call for Target’s first quarter revenue to jump roughly 7% to reach $18.85 billion. This could crush the fourth quarter’s 1.8% sales growth and come on top of the year-ago period’s 5% revenue expansion. Meanwhile TGT’s full-year fiscal 2020 revenue is projected to pop 4%, which would top FY19’s 3.7% growth.
The bottom end of the income statement looks far less impressive, with the retailer’s adjusted first quarter earnings projected to tumble 49% from the year-ago period to $0.78 a share. Target’s adjusted full-year EPS figure is expected to fall over 18%.
Investors can also see how far Target’s earnings estimates have fallen recently. The company’s Q1 consensus figure is down 53% from $1.66 a share 60 days ago, with its FY20 estimate 23.5% lower.
Other Fundamentals
Target, like nearly everyone else in retail has ramped up its e-commerce offerings in the Amazon (NASDAQ:AMZN) AMZN age. And the coronavirus might help showcase how strong that business model is and help the company improve it going forward.
Meanwhile, TGT stock is up roughly 65% over the last two years to outpace rival Walmart (NYSE:WMT)'s WMT 46% and Amazon’s 48%. Target shares have also climbed 70% over the past 12 months, despite having slipped around 6% in 2020. TGT is currently trading at around $120 a share, which puts it about 7% off its 52-week highs. And some might argue that its expected earnings decline might already be priced-in.
Target also currently trades at a discount compared to its industry in terms of forward 12-month sales, at 0.73X vs. its industry’s 2.0X. This also marks a discount against its own one-year highs. Plus, the company’s dividend yield of 2.20% tops Walmart’s 1.76% and Costco’s COST 0.94%.
Bottom Line
Target is currently a Zacks Rank #3 (Hold) heading into its Q1 release, and sports a “B” grade for Value and an “A” for Growth in our Style Scores system. TGT could clearly fall in the near-term given the broader coronavirus uncertainty.
That said, Target looks like a strong longer-term buy in the retail space, and its ability to grow its top-line during the coronavirus economic downturn should prove valuable.
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