BMO Capital Markets analyst Wayne Hood expressed optimism regarding Target Corporation TGT witnessing continued growth in traffic, after the company reported better-than-expected 2Q15 figures.
Hood maintained a Neutral rating on Target, while raising the price target from $85 to $87. The company reported its 2Q adjusted EPS at $1.22, beating the BMO estimate of $1.09, consensus of $1.11 and guidance of $1.04-$1.14.
Although Target’s comp store sales growth came in at 2.4 percent, in-line with expectations, the EPS beat was driven by better-than-expected expense management and gross margin expansion.
Target raised its 2015 EPS guidance by $0.10 to $4.60-$4.75 and projected its 3Q15 EPS at $0.79-$0.89, on 1-2 percent comp-store sales, GM rate expansion of 20-30 bps, flat SG&A rate, and EBIT margin expansion of 20-30 bps.
The EPS estimates for 2015 and 2016 have been raised to $4.76 and $5.13, respectively. Hood enumerated the reasons for the upward revision as:
- The 2Q15 EPS beat
- Robust growth in signature categories - Style, Baby, Kids and Wellness, which was “having a favorable impact on sales as well as on merchandise mix, giving us added confidence for GM rate improvement”
- Potential to recover “a portion of last year’s GM rate pressure of 60 bps on aggressive promotions used to drive traffic”
- Continued improvement in sequential and stacked transaction growth, boosting confidence in the company being able to grow comp-store sales 2 percent in 2H15 as sales comparisons stiffen
- Encouraging early back-to-school and college sales
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