Target Could Hit New All-Time High on Strong Q1 Earnings

Target, one of the largest North American retailers offering customers both everyday essentials and fashionables, is expected to report its first-quarter earnings of $2.07 per share, which represents year-over-year growth of over 250% from $0.59 per share seen in the same period a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 60%. The Minneapolis, Minnesota-based company would post year-over-year revenue growth of over 9% to $21.51 billion.

Target’s better-than-expected results, which will be announced on May 19, would help the stock hit new all-time highs. Target shares traded over 1.3% higher at $211.34 on Friday. The stock rose over 19% so far this year.

Analyst Comments

“We raise 1Q21 EPS to $2.18E, ahead of Street’s $2.10 as we raise our comps estimate to+11.5%, and tweak margin assumptions. We now model comps +11.5%, yielding 2-year stack growth of +22.3%, accelerating sequentially by +30bps,” noted Oliver Chen, equity analyst at Cowen.

“We are ahead of Street’s+8.2% consensus estimate, and think our estimates could ultimately prove conservative as Target’s (TGT) category portfolio should see the retailer benefit from the stimulus, improving trends in apparel and other re-opening categories, along with continued strength in-home, which will more than offset normalizing food, essentials, and other category comps.”

Target Price Forecast

Seventeen analysts who offered stock ratings for Target in the last three months forecast the average price in 12 months of $215.81 with a high forecast of $260.00 and a low forecast of $170.00.

The average price target represents a 2.30% increase from the last price of $210.96. Of those 17 analysts, 13 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $205 with a high of $260 under a bull scenario and $145 under the worst-case scenario. The firm gave an “Equal-weight” rating on the mass-market retail company’s stock.

“Target (TGT) looks interesting for L-T investors, though it could be range-bound in the N-T. Potential topline upside in ’21 the most visible catalyst, but it is hard to get confident in this until wallet and market share reversals begin to play out in mid ’21,” noted Simeon Gutman, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Deutsche Bank raised the target price to $225 from $213. Telsey Advisory Group lifted the target price to $235 from $215. Jefferies upped the target price to $210 from $188. JP Morgan increased the target price to $233 from $230. UBS lifted the target price to $210 from $185.

Upside and Downside Risks

Risks to Upside: 1) A sustained pickup in comps. 2) Less gross margin pressure/more expense leverage than anticipated. 3) Step up in buybacks boosts EPS growth. 4) A new real estate monetization strategy – highlighted by Morgan Stanley.

Risks to Downside: 1) Comps moderate as TGT laps tough compares. 2) Disappointing GM trajectory due to greater than anticipated headwinds from the digital mix shift, negative category mix shift, and markdowns. 3) High expense growth due to wage inflation.

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