Target Gets the Opportunity to Stand Out Among Big Box Retailers

Target Corporation's TGT effort to turn its focus back to its core business – selling chic merchandise in U.S. stores – will be in focus Wednesday when the discount retailer reports its Q4 results. Did shuttering Canadian stores and shedding a pharmacy business bolster earnings?

If analysts reporting to Thomson Reuter’s are, well, on target, it looks like the company might. For the quarter, the average forecast sits at $1.54 a share, a near-3% increase over the same period a year ago amid flat year-to-year revenue expectations of $21.8 billion. Analysts admit that’s not exactly awe-inspiring but note the Canadian store closings are not even a year old and the hand-off of the pharmacy business to CVS Health Corporation CVS just happened in December.

Analysts are likely to be listening to what’s ahead as TGT strives to improve its merchandise and in-store shopping experience at a time when e-commerce is making strides in enhancing top-line sales. The Minneapolis-based retailer’s forecast and discourse on e-commerce vs. bricks-and-mortar sales might help analysts measure the future of in-store sales, they say.

Five-quarter Winning Streak on the Line
TGT has surprised Wall Street the last five quarters with earnings that outpaced forecasts. Can it do so again Wednesday? That’s a big question considering the Q4 results of other big retailers, Wal-Mart Stores, Inc. WMT and Nordstrom, Inc. JWN, for example, missed the marks.

TGT’s stock on a year-over-year basis is off some 4% and, except for a couple months late last year, has performed steadily better than the broader market. Since bottoming at a 52-week trough in late January, the stock is up nearly 8%.

Short-term option traders have priced in a potential 4% share price move in either direction around the earnings release, according to the TD Ameritrade thinkorswim® platform’s Market Maker Move indicator.

Implied volatility is relatively low at the 54th percentile ahead the report. This is a shift away from high volatility amid a deep mid-year drop in the stock.

Early Monday call buyers were active in the weekly Feb 74.50 strike at two-and-a-half times the normal trading. Last week, put buyers favored the Feb 70 strikes.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.