Should You Buy Target Stock Ahead of Earnings?

Target (TGT) is among the largest retail companies globally, valued at a market cap of $71.4 billion. In the last 20 years, Target stock has returned 202% to shareholders after adjusting for dividend reinvestments. Comparatively, the S&P 500 Index ($SPX) has gained more than 600% in this period, on a dividend-adjusted basis.

After trading at all-time highs in late 2021, Target stock is down 42% from record levels. Over the last three years, the big-box retailer has wrestled with a range of macro headwinds, including elevated interest rates, inflation, slower consumer spending, and a sluggish economic environment. 

Let’s see if Target can surprise Wall Street to the upside with its upcoming earnings report, and stage a comeback to end 2024 at a 52-week high. 

What to Expect From Target in Fiscal Q3

Target is scheduled to announce its earnings results for fiscal Q3 of 2024 (ended in October) before the market opens next Wednesday, Nov. 20. According to consensus estimates, Target will report revenue of $25.9 billion and adjusted earnings per share of $2.30 in Q3. In the year-ago period, the retail giant reported revenue of $25 billion and earnings per share of $2.1 per share. So, while revenue is forecast to grow by 3.6%, earnings growth is forecast at 10% year over year. 

After a few quarters of sluggish sales and falling profit margins, Target returned to growth in fiscal Q2, as the top line grew by 3% year over year. The discount retailer surpassed Wall Street’s revenue and earnings estimates due to higher store visits to retail locations and the company’s website. Notably, customers increased discretionary spending in Q2 on items such as clothing. 

During its Q2 earnings call, Target projected its comparable sales to rise between 0% and 2% year over year. It also forecast adjusted earnings between $9 and $9.7 per share, above its previous estimates of $8.60 and $9.60. 

What Next for Target Stock?

Popular for its portfolio of trendy but inexpensive merchandise, Target might experience weakness in sales if inflation and interest rates remain elevated. In recent quarters, it has struggled with falling profits as customers generally purchased lower-margin products such as groceries. Additionally, organized retail crime took a huge toll, as the retailer booked losses from theft. 

Target remains cautious amid a challenging macro backdrop that makes it even more difficult to predict consumer mindsets and the economy's health in the near term. In fiscal Q2, Target increased comparable sales by 2%, allowing it to post a gain for the first time in five quarters. Interestingly, online sales drive growth, with sales rising 8.7% year over year as several customers used same-day services, including curbside pickup and home delivery. 

Further, Target has focused on increasing loyalty and discounts to drive sales and foot traffic. It relaunched its loyalty program a few months back and introduced a new paid membership. These decisions worked well for the company, as customer traffic to its store and website was up 3% year over year. However, the average size of the customer’s shopping basket declined. 

Target stock trades at a forward price-to-earnings multiple of 15.6x, which is not too high, given earnings growth is forecast to accelerate over the next 12 months. TGT is also a Dividend King, with a 2.89% yield and over 50 years of consistent growth.

Out of the 33 analysts covering TGT stock, the average rating is a “moderate buy,” with the mean price target of $176.78 indicating expected upside of about 14.2%. 

In today's trading, TGT is fractionally lower after Evercore ISI analyst Greg Melich said he expects a negative earnings reaction next week.

"With easy shrink accrual comparisons cycling after 3Q, we believe the TGT management team (including the new CFO who started during 3Q) will lean conservative into the holiday outlook," wrote the analyst, who has a price target of $165 for TGT.