Market Overview

Target Earnings Preview: Low Expectations For Q3

Target (NYSE: TGT), which has jumped on the open earlier on Thanksgiving Day bandwagon this year, is scheduled to report its fiscal third-quarter results Thursday, November 21, before the markets open.

The question for investors is whether Target results will echo the disappointing third-quarter numbers released by competitor Walmart (NYSE: WMT) last week. Target's report may also include updates on the expansion in Canada and the CityTarget stores initiative.

See also: Target Reacts to Underwhelming Canadian Rollout

Expectations

Analysts on average predict that Target will say that its revenue for the quarter grew less than three percent year-over-year to $17.37 billion. Earnings of $0.63 per share are also in the consensus forecast. That would be down from $0.81 per share in the same period of last year.

The consensus earnings per share (EPS) estimate has slipped by a penny in the past 60 days. Note that Target topped consensus EPS expectations in the previous quarter by a penny, but fell short of estimates by a penny or three in the two periods before that.

The company warned in its second quarter report that, due to cautious consumers and the costlier-than-expected Canadian expansion, full-year revenues and profits would fall at the low end of already reduced guidance. The share price pulled back almost seven percent in the days following the second-quarter report.

Looking ahead to the current quarter, which includes the holiday shopping period, the forecast currently calls for sales and EPS that are marginally lower than in the year-ago period. The full-year forecast has EPS slipping almost 12 percent and revenue that is about the same as a year ago.

The Company

Target is a retailer of general merchandise with more than 1,800 stores in the United States and Canada. Its wares include pharmaceuticals, consumer electronics, apparel, groceries, and automotive and seasonal merchandise. It also sells merchandise online via Target.com.

This S&P 500 component was founded in 1902, and its headquarters are in Minneapolis. It now has a market capitalization of about $42 billion. Gregg Steinhafel has been chief executive officer of the company since 2008 and chairman of the board since 2009.

Competitors include Sears Holdings (NASDAQ: SHLD) and Walmart. The former is expected to post a net loss per share and declining revenue, relative to a year ago. Last week, the latter beat EPS expectations but fell short on revenue and offered weak guidance for the rest of the year.

See also: Walmart Analyst Wrap

During the three months that ended in October, Target said it would acquire DermStore Beauty Group announced its first stores in Quebec and Nova Scotia, launched a digital video service and a prepaid mobile service, and unveiled its plans for the holiday shopping season.

Performance

Target has a long-term earnings per share growth forecast of more than 10 percent. Its return on equity is more than 16 percent. The price-to-earnings (P/E) ratio is less than the industry average. The company has a dividend yield of near 2.6 percent.

The number of Target shares sold short, as of the October 31 settlement date, represents more than three percent of the total float. That was the second highest level of short interest in the past year. It would take more than four days to close out all of the short positions.

For the past three months, the consensus recommendation of the analysts surveyed by Thomson/First Call who follow the stock has been to hold shares. The analysts' mean price target, or where they expect the stock to go, is less than five percent higher than the current share price.

The share price has not recovered from the sell-off following the previous earnings report. Still, shares are up more than 13 percent year to date, though currently below the 200-day moving average. Over the past six months, Target has outperformed not only the competitors mentioned above, but also the broader markets.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: Sears Holdings Target WalmartEarnings News Previews Trading Ideas Best of Benzinga

 

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