Perfect Time to Take Target Profits

Target Corp. (TGT) reports Q2 2021 earnings ahead of Wednesday’s opening bell, with analysts expecting a profit of $3.52 per-share on $25.02 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 5% profit increase compared to the same quarter in 2020, when the world emerged from the first lockdown. The stock rallied 6.1% in May after blowing away Q1 top and bottom line estimates and has carved a long series of new highs into August.

Red Hot Two Year Returns

The retail giant has been a blisteringly-hot performer so far in 2021, posting a 48% year-to-date return on top of last year’s 37% return. In fact, it hasn’t touched the 50-month moving average since May 2019 despite repeated trips into that level between 2014 and 2018. Therein lies the problem for sidelined investors, i.e. the stock is universally loved and extremely overbought, significantly raising odds for an intermediate correction lasting weeks or months.

Target has benefited from the pandemic, capturing retail market share from less-prepared rivals. Skyrocketing GDP in the first half also underpinned performance, with Americans catching up on deferred purchases. The Delta variant has impacted that trajectory but we really don’t know the extent of renewed headwinds. Walmart Inc.’s (WMT) confessional on Tuesday morning could impact that calculation … and the reaction to Wednesday’s report.

Wall Street and Technical Outlook

Wall Street consensus has eased to an ‘Overweight’ rating, based upon 19 ‘Buy’, 2 ‘Overweight’, and 6 ‘Hold’ recommendations. One analyst recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $176 to a Street-high $305 while the stock closed Friday more than $3 above the median $258 target. This indicates that Target is fully-valued, raising doubts that earnings will yield a buying opportunity.

Target underperformed between 2015 and 2019, held down by a well-publicized data breach. It broke out in August 2019, entering a powerful uptrend that tested new support successfully in March 2020. The stock has almost tripled in price since that time while carving just one deep pullback. It’s been glued to the top 20-month Bollinger Band throughout 2021 but long term relative strength just hit the most extreme overbought technical reading since 1967.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.