Target Delivers Strong Earnings and Guidance

Target Corporation (Ticker Symbol: TGT) reported better than expected earnings and revenue for the second quarter this week.  The Minneapolis, Minnesota based company reported an earnings per share beat of $1.82 cents per share vs. Wall Street analysts’ expectations of $1.62 cents per share.  Additionally, Target reported a revenue beat of $18.42 billion vs. Wall Street analysts’ expectations of $18.34 billion.  The company also reported same-store sales that showed a growth of 3.4% vs. Wall Street analysts expectations of growth of 2.9%.

The retail giant has been trying to identify ways to compete with Amazon by attempting to make shopping as convenient as it can be for customers.  Target has been increasing investments in its online stores and has been investing in logistics to enable the company to ship faster.  Target was also a beneficiary of Amazons’ Prime day, where it matched Amazon’s item price for customers, which helped give the company a boost  in revenue this quarter.

Target’s stock had a mediocre start in 2018, trading in a 6-month Horizontal Channel.  Horizontal Channels are usually viewed as continuation patterns and are areas of indecisiveness between buyers and sellers.  The stock is usually at a point where supply and demand are relatively balanced and price trades within a certain range, in Target’s case between the $68.00 and $78.00 dollar prices levels. At the beginning of the third quarter, Target’s stock finally broke out from that range, rallying over 15%, before finding resistance early in the fourth quarter of 2018 around the $90.00 price level.  Target proceeded to give back all of its gains from the year, driven by a negative earnings report in the fourth quarter that sent the stock gapping lower.

In the fourth quarter of 2018, the stock bottomed, forming a bullish divergence pattern, as indicated on the chart by the yellow arrows, where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend, which can at times lead to a reversal as occurred in Target’s case. Since then, Target has had a wonderful start to 2019 rallying over 25% in the first two quarters.  Target’s stock pulled back slightly from the highs of the quarter but found some support in July at its 100-day Moving Average and has since had a positive move higher.  The stock gapped up over 15%  on the earnings release and ticked to an all-time high after the open this morning, reaching the $102.70 level.

(Chart above courtesy of ​​)

Based on a survey of 11 analysts offering 12-month price targets, the average price target for Target’s stock is $93.20. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $102.14.

The large scale retailers like Walmart and Target continue to impress investors by beating Wall Street analysts.  Both companies reported stronger than expected earnings and raised year-end guidance this quarter. Long-term shareholders of Target are being rewarded for holding the stock through capital appreciation and its dividend.  Investors in the retail space should look to Walmart’s (Ticker Symbol: WMT) earnings release on November 14th for fresh news within the retail sector.